Achieving the goals of the Employment act of 1946--thirtieth anniversary review


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Achieving the goals of the Employment act of 1946--thirtieth anniversary review
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Table of Contents
    Front Cover
        Page i
        Page ii
    Letter of transmittal
        Page iii
        Page iv
    Table of Contents
        Page v
        Page vi
    I. Introduction
        Page 1
        Page 2
    II. Legal structure of antitrust
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
    III. Assessment of the impact of antitrust laws and enforcement
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
    IV. Particular current problem areas in antitrust
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
    V. Deficiencies of data and analysis
        Page 32
        Page 33
        Page 34
    VI. Proposed reforms in government and antimonopoly policy
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
        Page 44
        Page 45
    VII. Conclusion
        Page 46
        Page 47
        Page 48
    Back Cover
        Page 49
        Page 50
Full Text

94th Congress 1
2d Session I





Volume 3-Inflation and Market Structure

PAR No. 2






/ f -



DECEMBER 17, 1976

Printed for the use of the Joint Economic Committee



For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 Price $.70 cents
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49 La) 'I i I 4

(Created pursuant to see. 5(a) of Public Law 304, 79th Cong.)

HUBERT H. HUMPHREY, Minnesota, Chairman
RICHARD BOLLING, Missouri, Vice Chairman

EDWARD M. KENNEDY, Massachusetts
WILLIAM V. ROTH, JR., Delaware

HENRY S. REUSS, Wisconsin
WILLIAM S. MOO RHEAD, Pennsylvania
GILLIS W. LONG, Louisiana
OTIS G. PIKE, New York
MARGARET M. HECKLER, Massachusetts

JoHN R. STARK, Ezecutive Director
RICHARD F. KAUFMAN, General Counsel











DECEMBER 14, 1976.
To the Members of the Joint Economic Committee:
Transmitted herewith for the use of the Members of the Joint
Economic Committee and other Members of Congress is a study
entitled "Antitrust Law and Administration: A Survey of Current
Issues," prepared by Mr. Julius W. Allen, a consultant to the Eco-
nomics Division of the Congressional Research Service, Library of
This study provides a comprehensive and up-to-date appraisal of
our antitrust laws and procedures in light of the increasing public
awareness of the problems associated with concentrations of private
economic power. It is one of a series of monographs being prepared
to commemorate the 30th anniversary of the Employment Act of
1946. In the course of this series, a wide range of economic issues is
being examined in an attempt to develop improved means to achieve
the goals of the Act. Other studies focus on problems of employment,
inflation, economic growth, planning, and monetary and fiscal policy,
among other issues.
The Committee wishes to thank Mr. Allen for his work on this
study and the Congressional Research Service for its funding and
The views expressed in this document do not necessarily represent
those of the Joint Economic Committee, individual members of the
Committee, or its staff.
Chairman, Joint Economic Committee.

DECEMBER 9, 1976.
Chairman, Joint Economic Committee,
U.S. Congress, Washington, D.C.
DEAR MR. CHAIRMAN: Transmitted herewith is a study entitled
"Antitrust Law and Administration: A Survey of Current Issues,"
prepared by Mr. Julius W. Allen, consultant to the Economics Divi-
sion of the Congressional Research Service, Library of Congress.
In this monograph, Mr. Allen undertakes a comprehensive review
of antitrust issues including (1) the major provisions of the antitrust
laws and our experience with these provisions in combating instances
of excessive market power; (2) newer issues of antitrust policy,
including those raised by conglomerate firms, multinational firms,


financial intermediaries, and the problem of bigness itself; and (3)
proposals to remedy deficiencies in existing antitrust laws and admin-
istration and in available data on corporate operations.
Publication of this paper provides a new assessment of these issues
at a time when they are becoming matters of increasing concern to the
Congress and the public.
Executive Director, Joint Economic Committee.


Letters of transmittal ---------------------------------------------

I. Introduction ------------------------------------------------1
A. General assessments of antitrust -------------------------1
B. Limitations in ability to assess the role of antitrust --------- 3
II. Legal structure of antitrust ------------------------------------5
A. Laws to promote competition --------------------------- 5
1. Sherman Act of 1890 ---------------------------- 5
2. Clayton Act of 1914 ----------------------------- 8
3. Federal Trade Commission Act of 1914 -------------13
B. Antitrust laws to protect competitors -------------------- 14
1. Robinson-Patman Act ---------------------------14
2. Resale price maintenance laws -------------------- 15
III. Assessment of the impact of antitrust laws and enforcement ---------17
A. Impact on the economy --------------------------------17
B. Lack of measurable impact on market concentration --------20
C. Difficulties of measuring impact -------------------------20
D. Legal versus economic approach to antitrust ---------------21
E. Summary -------------------------------------------22
IV. Particular current problem areas in antitrust --------------------- 23
A. Conglomerate mergers --------------------------------- 23
B. The problem of bigness -------------------------------- 27
C. Multinational corporations ------------------------------29
D. Political influence of large corporations ------------------- 30
E. Power exerted by financial intermediaries ----------------- 31
V. Deficiencies of data and analysis --------------------------------32
VI. Proposed reforms in government antimonopoly policy --------------35
A. Strengthening of existing antitrust law ------------------- 35
B. Limitation of market power ----------------------------- 37
1. The Kaysen-Turner draft statute ------------------38
2. The Neal Committee proposal -------------------- 38
3. Senator Hart's industrial reorganization bill ---------39
4. Other proposals -------------------------------- 40
C. Making the economy more competitive ------------------- 43
VII. Conclusion ------------------------------------------------46

Author's Acknowledgments
The author wishes to express his gratitude to the following persons
who read and made constructive comments on earlier drafts of this
report: Harry N. Stein, former chief of the American Law Division,
Congressional Research Service, Library of Congress; Edward Knight
of the Economics Division, Congressional Research Service, Library
of Congress; and Janice E. Rubin of the American Law Division,
Congressional Research Service, Library of Congress. He also is
grateful to Miss Donna Duffy who typed the drafts of this report with
much skill and patience.

By Julius W. Allen*

The main purpose of this paper is to provide a perspective on the
impact on the economy of antitrust law and policy, and a survey of
alternative recommendations intended to make antitrust policy more
effective. The paper, in addition to introduction and conclusion, has
the following sections: (1) a survey of the principal antitrust laws and
their administration, as well as other legislative and administrative
actions that have a direct bearing on monopoly and industrial concen-
tration; (2) assessments of the impact of antitrust law and enforce-
ment on the national economy; (3) some of the problem areas in
antitrust including conglomerates, the issue of bigness, multinational
corporations, political influence of large corporations, and the in-
fluence of financial intermediaries; (4) deficiencies of data and anal-
ysis; and (5) proposed approaches and solutions to antitrust and
monopoly issues.

At the outset it is striking to note how widely divergent general
assessments of antitrust laws are, ranging from those holding antitrust
legislation to be the indispensable legal framework for our private
enterprise system to those viewing it as a useless fiction if not a sham
and a fraud.
Thus, for example, Justice Thurgood Marshall in 1972, in United
States v. Topco Associates, Inc., speaking for the Supreme Court
stated that "Antitrust laws in general, and the Sherman Act in partic-
ular, are the Magna Carta of free enterprise. They are as important
to the preservation of economic freedom and our free enterprise system
as the Bill of Rights is to the protection of our fundamental personal
freedom." I Similarly Dean Neil H. Jacoby, of the University of
California at Los Angeles and a member of the Council of Economic
Advisers under President Eisenhower, wrote in 1974: "Historically,
antitrust has contributed importantly to the maintenance of effective
competition." 2 Milton Handler, reviewing in 1973 twenty-five years
of antitrust, concluded: "One characteristic of recent decisions, . .
is the virtually unanimous agreement as to the validity of our antitrust
goals. At age 82, the Sherman Act has a redoubtable vigor. There is
no reason why arrangements or practices subversive of competition
cannot be totally eliminated." I Only slightly less positive was Donald
* Economic consultant, Economics Division, Congressional Research Service, Library of Congress.
1405 US. at 619 (1972).
t Jacoby Neil H., Antitrust or Pro-competition? California Management Review, v. 16, Summer 1974: 54.
'Handler, Milton. Twenty-five Years of Antitrust. (25th Annual Antitrust Review.) Columbia Law
Review, v. 73, March 1973: 449.

Dewey of Columbia University, writing in the International Ency-
clopedia of the Social Sciences: "At present writing [1968], the policy
of using antitrust legislation to discourage economic concentration
has almost no influential critics in the United States. So long as limi-
tations on corporate size do not impose discernible handicaps on
American firms in their competition with foreign rivals, this situation
is unlikely to change." 4
On the other hand, negative assessments are given by, among others,
the liberal Harvard University economist, J. K. Galbraith, and the
conservative political scientist of New York University, Irving
Kristol, as follows:
Galbraith, in his "Economics and the Public Purpose," wrote, in
The antitrust laws are now eighty years old; aside from some more recent
legislation on mergers the basic structure of law is nearly sixty years old. Nothing
has yet happened to arrest the development and burgeoning power of the techno-
structure. A firm may, on occasion, be forbidden the acquisition of another firm;
it may, on occasion, be required to divest itself of a subsidiary. But for more
than half a century, if already large, it has been wholly secure in its existing size
and almost wholly secure in further growth. Thus the remedy that emerges from
the neoclassical model is harmless. It presents no threat to the power or autonomy
of the technostructure or to its affirmative interest in growth. . From the
standpoint of the technostructure and the planning system the antitrust laws
are admirably innocuous.5
In the fall of 1975, Irving Kristol wrote:
The populist response to the transformation of capitalism by the large corpora-
tion was, and is: "Break it up." Anti-trust and anti-monopoly legislation was
the consequence. Such legislation is still enacted and re-enacted, and anti-trust
prosecutions still make headlines. But the effort is by now routine, random, and
largely pointless. . Just how much difference, after all, would it make if
AT & T were forced to spin off its Western Electric manufacturing subsidiary,
or if IBM were divided into three different computer companies? All that would
be accomplished is a slight increase in the number of large corporations, with
very little consequence for the shape of the economy or the society as a whole.6
Nor is the middle ground vacant. Thus Simon Whitney of New
York University wrote in 1973: "To summarize, antitrust policy
serves useful functions, even if it could be improved; but the urgent
and pressing problems are found elsewhere-from the environment
right through inflation." I Peter Asch, of Rutgers University, in the
final chapter of his 1970 volume, "Economic Theory and the Anti-
trust Dilemma," concludes:
American antitrust policy can be interpreted partially as a commitment to the
status quo. A survey of the various branches of antitrust indicates that, whatever
its positive accomplishments may be, it has not often been a vehicle for sharp
change. Indeed, it may be said to resist change effectively. It appears that the
courts and the federal agencies have been reluctant to tamper with existing firms
and markets almost as a matter of ethical principle.8
And finally, Justice Abe Fortas stated, in picturesque language:
We expect antitrust enforcement to have specific form and symmetry; to have
discernible design and pattern and dimensions; and to fit some kind of an eco-
4 Dewey, Donald. Antitrust Legislation. International Encyclopedia of the Social Sciences. 1968 v. 1
p. 356.
5 Galbraith, John Kenneth. Economics and the Public Purpose. Boston, Houghton Mifflin, 1973, p. 121
6 Kristol, Irving. On Corporate Capitalism in America. Public Interest, No. 41, Fall 1975: 129-130.
T Whitney, Simon. Anti-Trust-Cost and Benefits. In: Backman, Jules (editor). Business Problems of
the Seventies. New York, New York University Press, 1973, p. 119.
'Asch, Peter. Economic Theory and the Antitrust Dilemma. New York, Wiley, 1970, p. 400, 401.

nomic framework. But antitrust does not turn out a well articulated, carefully
defined, finished product. By its nature, it produces something which is misshapen,
bumpy and bulgy-and which at best serves to shield us somewhat from the
foggy, foggy dew.9
This diversity in assessment of antitrust law and administration
makes it clear that considerable clarification is needed as to what
antitrust is all about, and, more specifically, how it affects our econ-
omy, as best we can judge it.
At the outset, we need to be aware of certain factors that limit our
ability to make such an assessment of the role of antitrust.
First, as the views expressed above already suggest, antitrust law
and administration are by no means clear, definite and unswerving
in their course. Parts of the law tend to blunt the anti-monopoly pro-
visions of other parts of the law. Court interpretations have had a
major impact in determining the legality of particular business prac-
tices and forms of business organization, and have caused the law to
have quite a different practical meaning at one time from what it had
at another. Administration has been vigorous at times and lax at others,
but almost always highly selective in its targets. This vacillation is
perhaps a reflection of the ambivalence in the attitude of the American
people historically toward bigness and success in business. As the
historian, Richard Hofstadter, has noted, "Americans have always
had to balance their love of bigness and efficiency against their fear
of power and their regard for individualism and competition." 10
Second, the government itself is in many ways supportive of monop-
oly and thwarts competition. The law has permitted numerous ex-
emptions from antitrust coverage. Neil Jacoby has recently noted:
"When one aggregates all the wage and price determinations un-
touched by the antitrust laws, it is evident that a major fraction of the
nation's GNP is generated outside of legal restraints against monop-
oly." 11 The exemptions from coverage by antitrust law include ex-
port associations under the Webb-Pomerene Act of 1918; cooperative
farm production and marketing associations under the Capper-Volstead
Act of 1922 and subsequent legislation; labor unions under the Clay-
ton Act of 1914 and subsequent legislation;12 major aspects of the
price behavior of government regulated firms, including railroads,
other transportation companies, communications companies, other
public utilities, and insurance companies; as well as some professional
sports; and many local trades and professions subject to license or
other local or State control
In addition, monopoly is furthered by tax provisions, such as those
encouraging mergers, and by trade barriers against imports from for-
eign countries.
9 Fortas, Abe. Remarks at American Bar Association. Section on Antitrust Law, Proceedings of the
Annual Meeting. Chicago, Illinois, August 11-13, 1963, p. 325.
10 Hofstadter, Richard. What Happened to the Antitrust Movement? In: Cheit, Earl F. (editor). The
Business Establishment. New York, Wiley, 1964, p. 131.
11 Jacoby, Neil H. Antitrust or Pro-competition? California Management Review, v. 16, Summer 1974: 54.
12 This exemption does not extend to secondary boycotts, to collusion with unionized employers to fix end
product prices, or to driving non-union firms out of business.


A particularly graphic illustration of government abetting restraints
to competition is provided by Walter Adams' ticking off the variety of
aids provided by the government to the oil industry as follows:
The Bureau of Mines in the Department of Interior publishes monthly estimates
of the market demand for petroleum (at desired prices, of course), thus establishing
a national production quota. Under the Interstate Oil Compact, approved by
Congress, these estimates are broken down into quotas for each of the oil-producing
states which, in turn, through various prorationing devices, allocate "allowable
production" to individual wells. Oil produced in violation of these prorationing
regulations is branded as "hot oil," and the federal government prohibits its
shipment in interstate commerce. Also, to buttress this output-restriction and
price-maintenance scheme against potential competition, the government pro-
tects the industry with a tariff of 10.5 cents per barrel on crude oil and with import
quotas (belatedly suspended in May 1973). Finally, to top off these indirect
subsidies with more visible favors, the government authorizes oil companies to
charge off a 22 percent depletion allowance against their gross income, to "expense"
their intangible drilling costs, and to apply their foreign tax and royalty payments
as an offset against their obligations to the United States Treasury.3
As Franklin R. Edwards has recently stated:
Although government regulation of industry and markets occurs for many
reasons, its effect is frequently to circumscribe competition. In many instances
the scope of regulation is much broader than that required to accomplish its
intended purpose. In other cases regulation is typically used to foster and protect
cartels or trade associations. Business-instigated government intervention is often
the most effective and least costly way for an industry to monopolize. All this is
not to say that market concentration is not an important source of monopoly
power, but only that government regulation may be an equal or more important
source of such power.4
It is not to be gainsaid that some of this government intervention
with anti-competitive effects may nonetheless have substantial social
justification. But changing conditions make it desirable to reevaluate
such provisions of law and government policy. Certainly there are
numerous cases, for example, where intervention justified by natural
monopoly conditions at one time is no longer warranted as such
monopoly has receded. This is argued to-be the case with aviation
and other modes of transportation and in some parts of the communi-
cations industry.
Further, as will be noted in more detail below, some of the antitrust
laws themselves, notably the Robinson-Patman Act, and the resale
price maintenance laws (recently repealed) have had the effect of
contracting the area of effectiveness of other antitrust laws.
Third, although antitrust is probably the element of government
policy that focuses most directly on curbing monopoly and enhancing
competition, it is by no means the only weapon in the government's
arsenal designed to achieve these objectives. Taxation, price control,
government regulation, and even public ownership and moral suasion
contribute in varying degrees towards reaching the same goals as
Finally, market forces-changes in supply or demand due to count-
less reasons and political and social changes at home and abroad-may
well have a greater impact on the extent of monopoly and concentra-
tion than the total of government actions. All of these factors interact
upon one another. Thus it is rarely possible to make a definitive
assessment of the impact of a single factor on economic welfare.
13 Adams, Walter. Corporate Power and Economic Apologetics: A Public Policy Perspective. In: Indus-
trial Concentration: The New Learning. Boston, Little, Brown, 1974, p. 370.
14 Edwards, Franklin R. Concentration, Monopoly, and Industrial Performance: One Man's Assessment.
In: Industrial Concentration: The New Learning, p. 437.


A brief overview of current antitrust law, its administration, and
its interpretation by the courts is presented as background for the
assessment of the impact of antitrust and the recommendations for
its revision which follow.
The Acts to be considered are the Sherman Act of 1890, the Clayton
Act of 1914, the Federal Trade Commission Act of 1914, the Robinson-
Patman Act of 1936 amending the Clayton Act, the Miller-Tydings
Act of 1937 amending the Sherman Act, the Celler-Kefauver Act of
1950 amending the Clayton Act, and the McGuire Act of 1952 amend-
ing the Federal Trade Commission Act. Of these seven Acts the first
three are the basic statutes designed, along with the Celler-Kefauver
Amendment, to promote competition and to restrain monopolistic
behavior. The other three Acts provide for certain reins on competition
in the interest of protecting existing competitors.
At the time of their enactment, the first three laws were virtually
unique in the industrial nations of the world, and were largely re-
sponsible that the direction of growth of the economy of the United
States was quite different from that of the largely cartel-dominated
economies of much of Europe. It was only after World War II that
antitrust laws along the American model reached significant propor-
tions in western Europe.

1. Sherman Act of 1890
The Sherman Act is the most basic of American antitrust statutes.
It has two key substantive sections. Section 1 declares illegal "every
contract, combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce." Section 2 makes every person
guilty of a misdemeanor who "shall monopolize, or attempt to monopo-
lize, or combine or conspire with any other person or persons, to
monopolize any part of the trade or commerce among the several
States or with foreign nations."
Without tracing the entire history of the judicial interpretation of
these two sections, and at the risk of drastic unbending of the con-
voluted change of such interpretations, one may fairly conclude
that the basic trend in interpreting these two sections has been highly
dissimilar. The proscription in Section 1 of contracts, combinations,
and conspiracies in restraint of trade has been generally interpreted
as outlawing per se all agreements among competing firms to fix prices,
to restrict output, to share markets on a predetermined basis, or to
use other means directly to restrict the force of competition, regardless
of how otherwise justifiable such restraints of trade might be argued
to be. Judicial problems arise where the same effects are achieved
without specific agreements.

On the other hand, Section 2, the provision against monopolizing,
has been subject to a "rule of reason" for most of the time since the
:Standard Oil case of 1911,' especially until the Alcoa decision of 1945.2
Under this interpretation by the Supreme Court, proof of monopoliza-
tion is not per se sufficient grounds for finding a firm in violation of
Section 2; but such monopolization must be proved to be unreasonable
or contrary to the public interest.
The per se doctrine of Section 1 prohibiting price fixing was clearly
spelled out as early as 1897 in the Trans-Missouri Freight Association
decision 3 where Justice Peckham for the majority of the Supreme
Court stated:
When the body of an act pronounces as illegal every contract or combination in
restraint of trade or commerce among the several states, etc., the plain and or-
dinary meaning of such language is not limited -to the kind of contract alone
which is in unreasonable restraint of trade, but all contracts are included in such
language, and no exception or limitation can be added without placing in the
act that which has been omitted by Congress.
With differing emphases the per se principle was reinforced in the
Addyston Pipe and Steel case in 1898,4 the Trenton Potteries case in
1927 5 and the Socony Mobil case in 1940.6 The court was explicit in
the Socony Mobil case in stating:
For over forty years the Court has consistently and without deviation adhered
to the principle that price-fixing agreements are unlawful per se under the Sherman
Act and that no showing of so-called competitive abuses or evils which those
agreements were designed to eliminate or alleviate may be interpreted as a de-
Any combination which tampers with price structures is engaged in an unlawful
activity.... Congress... has not permitted the age-old cry of ruinous competition
and competitive evils to be a defense to price-fixing conspiracies.
Further, as Frederic M. Scherer notes in his Industrial Market
Structure and Economic Performance (1970):
Included under the per se prohibition have been not only express price-fixing
agreements, but also conspiracies with a more subtle impact on price, such as
agreements to restrict output, to divide up the market into exclusive spheres of
influence, to allocate customers by seller, to follow standardized pricing formulas
or methods, and to boycott or exclude from the market firms which refuse to
abide by industry-pricing norms.7
This prohibition of price fixing per se is not, however, as absolute
as it might appear. For example, until their repeal in 1975, the Miller-
Tydings and the McGuire Acts permitted the enforcement of State
and local resale price maintenance laws.8 Under such laws manu-
facturers of trade-marked items could set a floor under which retailers
were not permitted to sell their goods. The Webb-Pomerene Act
exempted price-fixing and other agreements from antitrust prohibitions
where they involved solely export market sales. The Reed-Bulwinkle
Act of 1948 exempted collective rate setting practices of common
carriers from antitrust prohibitions, so long as such rates were ap-
proved by the Interstate Commerce Commission. There are also
U.S. v. Standard Oil Co. of New Jersey et al., 221 U.S. 1 (1911).
U.S. v. Aluminum Co. of America et al., 148 F. 2d 416 (1945).
3 U.S. v. Trans-Missouri Freight Association, 166 U.S. 290 (1897).
4 U.S. v. Addyston Pipe and Steel Co. et al., 85 Fed. 279 (1898).
6 U.S. v. Trenton Potteries Co. et al., 273 U.S. 392 (1927).
6 U.S. v. Socony-vacuum Oil Co. et at., 310 U.S. 150 (1940).
7 Scherer, Frederic M., Industrial Market Structure and Economic Performance. Chicago, Rand McNally,
1970, p. 432.
S Discussed further on pp. 15-16.

considerable areas of uncertainty where specific price-fixing agree-
ments do not appear to exist but where parallel piicmg policies, often
involving one firm acting as price leader, have the same effect as
actual price-fixing agreements.
The prohibitions in Section 2 against monopolizing, attempting to
monopolize, or conspiring to monopiize have, generally, been more
elusive and difficult to deal with than the price-fixing practices under
Section 1. In the first place, size in itself or virtual absence of com-
petition in and of itself, is not illegal. Under many circumstances,
monopoly itself is not outlawed. Public utility monopolies and monop-
olies derived from unequal efficiency in production or organization, or
superior quality of product, are not illegal. It is monopolization, not
monopoly per se, that is illegal.
The courts have been wrestling with the question of determining
what constitutes monopolization under the broad mandate of the
Sherman Act ever since the Act was passed. During the first two
decades after passage of the Sherman Act the courts and the executive
branch were loath to proceed forcefully against existing trusts. Not
until 1911 was a clearcut decision against monopolization reached, in
the Standard Oil of New Jersey case.9 Here the courts found that
Standard Oil had illegally monopolized the petroleum refining industry,
and ordered the dissolution of the company. In a similar case the
same year, the American Tobacco Company was ordered to be dis-
solved."' Decisions by the Supreme Court in both cases applied a rule
of reason setting forth a distinction between "good" and "bad"
trusts. In 1920 United States Steel Corporation was found to be a
"good" trust." There the majority of the court concluded that U.S.
Steel had not monopolized in the sense of a violation of the Sherman
Act. Even if it had monopoly power, the company had not been found
by the court to exercise such power. Therefore dissolution was not
required for the greatest consolidation in modern American industrial
history. The U.S. Steel decision against the .government and a similar
one upholding American Can Company against a Justice Department
suit 12 led to a hiatus of 25 years in any significant action in attacking
monopoly under Section 2.
The post-World War II years have, however, witnessed several
cases which provide evidence that Section 2's dormancy was not to be
eternal. In 1945 a three-member panel of Circuit Court judges, with
Judge Learned Hand presiding, reversed a lower court which had up-
held Alcoa against Justice Department charges of monopolization.3
Judge Hand concluded that Alcoa by building up production capacity
and reserves in advance of demand "meant to keep, and did keep, that
complete and exclusive hold upon the ingot market with which it
started. That was to 'monopolize' that market, however innocently it
otherwise proceeded," 4 A key factor in Judge Hand's decision was a.
determination as to which market was relevant for determining the
extent of Alcoa's share. The District Court had agreed with Alcoa's
contention that its share of the aluminum market was 33 percent. But
Judge Hand, by defining the market much more more narrowly
' U.S. v. Standard Oil Co. of New Jersey et a]., 221 U.S. 1 (1911).
10 U.S. v. American Tobacco Co., 221 U.S. 106 (1911).
11 U.S. v. United States Steel Corporation, 251 U.S. 417 (1920).
12 U.S. v. American Can Company et al., 2W Fed. 859 (1916).
13 U.S. v. Aluminum Co. of America et al., 148 F. 2d 416 (1945).
14 Ibid., p. 432.

(including only primary and not secondary ingot production, for
example), found Alcoa's share to be 90 percent, enough in the court's
view to constitute a monopoly. This case made it possible "to infer
illegal monopolization without evidence of predatory or otherwise
unreasonable practices driving competitors from the market".'5 It was
the first major case to turn on the definition of the relevant market as a
key factor in determining whether a firm occupied a monopolistic or
oligopolistic position within an industry. This issue of the size of the
market has been central to court decisions on monopoly power ever
The monopolization thrust of the Alcoa decision was further
strengthened by the decision a few years later in the case against
several motion picture exhibition chains in which Justice Douglas,
speaking for the majority of the court, stated: "A monopoly power,
whether lawfully or unlawfully acquired, may itself constitute an evil
and stand condemned under Section 2 even though it remains un-
exercised." 16 Similarly the United Shoe Machinery Supreme Court
decision of 1954'1 found the company guilty of monopolization because
certain of its business practices, such as requiring leases of its ma-
chinery and refusal to sell, although not objectionable per se, had the
effect of preventing new entry and perpetuating the firm's dominance
in the shoe machinery business.
However, since that time, there appears to have been some pulling
back from the positions enunciated in the immediate postwar period.
Notably in the 1956 DuPont case.,i the reasoning in the Alcoa case
was reversed. Here the Supreme Court found the company not guilty
of monopolizing cellophane production, largely on the basis that the
relevant market was deemed to be flexible packaging materials
generally (a wider market), and not solely cellophane (a narrower
market), as the Justice Department had been arguing.
Currently interest is focused on the suit brought by the Justice
Department against the International Business Machines Corporation.
It is the largest antitrust suit ever brought to trial. The Justice De-
partment is arguing that IBM is resorting to illegal monopolization
tactics in the data processing industry. Even though the case was
initiated in January 1969, it did not come to trial until May 1975 and
a district court verdict cannot be expected before 1977 at the earliest.
Already, however, one may confidently assume that this case, like
the DuPont, Aluminum and many others, will turn largely on how
widely or narrowly the market for the company's products and services
is defined.
The Antitrust Improvements Act of 1976 (see pp. 35-36 below)
while not altering the substance of the Sherman Act may be helpful in
increasing the ability of the Justice Department to enforce it.
2. Clayton Act of 1914
The Clayton Act of 1914 was passed as the result of a widespread
-disillusionment with the Sherman Act, its apparent inability to come
to grips with particular anticompetitive practices, and the feeling that
Is Scherer, op. cit., p. 460.
i6 U.S. v. Griffith Amusement Co., 334, U.S. 100, 107 (1948).
17 U.S. v. United Shoe Machinery Corporation, 347 U.S. 521 (1954).
4S U.S. v. E. I. duPont de Nemours and Co., 351 U.S. 377 (1956).

it was ineffective in combating the trusts and combinations that were
growing rapidly at the turn of the century. The most important
provisions of the Clayton Act are the following.
Section 2 prohibits such price discrimination as would "substan-
tially lessen competition or tend to create a monopoly in any line of
commerce." This section was amended significantly by the Robinson-
Patman Act of 1936, to be discussed below. Section 3 prohibits tying
contracts and exclusive dealing restrictions which adversely affect
competition. Section 7, in many ways the most important in the Act,
prohibits mergers where their effect may be "to substantially lessen
competition" or "tend to create a monopoly in any line of commerce."
It was relatively ineffective until 1950 when the Celler-Kefauver
Amendments closed serious loopholes in the law, as noted below,
pp. 10-12. Section 8 prohibits interlocking directorates among directly
competing firms. This provision was not vigorously enforced before
1968. It also does not affect indirect interlocks in which a director of a
firm (often a financial institution) holds seats on boards of two or
more other companies that do directly compete with each other.
The "loopholes" in the original Section 2 of the Clayton Act were
substantial since price discrimination due to differences in grade,
quality or quantity of commodity sold was exempt. These loopholes
were closed, at least partially, by the Robinson-Patman Act enacted
in 1936. However, as noted below (pp. 14-15), difficulties of inter-
pretation and enforcement remain.
The prohibitions in Section 3 against tying contracts, requirements
contracts, exclusive dealing and exclusive dealer franchises, have
been interpreted and clarified by the courts in the 60 years since pas-
sage of the Clayton Act. Essentially each of these practices represents
a kind of limitation of competition, but their proscription has been
qualified in specific cases. For example, as Frederic Scherer points out
in the case of tying agreements:
Violation will not be found unless there is monopoly power in the tying market or
unless a substantial volume of sales is foreclosed in the tied good market, and for
relatively small firms producing unpatented products, these conditions are not
likely to be satisfied. Small companies attempting to break into a new market
under the protection of tying contracts may also escape censure. . The law
also does not reach tying arrangements which are purely voluntary and informal-
i.e., when customers habitually buy a machine producer's special supplies in the
beief that the machine will thereby function more effectively, or because it is
more convenient, and not because the machine maker refuses to sell or lease
machines without a supply contract.19
In addition, manufacturers of intricate or special equipment have
been generally successful in requiring dealers not to sell or install
repair parts from competing firms.
Similarly, requirements contracts, under which a buyer agrees to
purchase all his requirements for some commodity or group of com-
modities from a single seller, stand a good chance of being judged legal
if they are negotiated by sellers possessing a small share of the rel-
evant market.
Thus far, there has been no serious attempt to encourage automobile
dealers to handle vehicles of more than one manufacturer. While
it is illegal for dealers to agree among themselves not to infringe upon
10 Scherer, op. cit., p. 506, 507.


each other's sales territories, it is not illegal for a manufacturer to
limit the number and location of outlets to which franchises are
The difficulties in determining the legality under both the Sherman
and the Clayton Act of particular franchise arrangements are well
illustrated in the 1963 White Motor case 20 in which the Supreme
Court declared that it did not "know enough of the economic and
business stuff out of which these arrangements emerge" to determine
whether they stifle competition or whether they may be "the only
practicable means a small company has for breaking into or staying
in business." In this case the Supreme Court remanded the case to the
district court for a more thorough exploration of the facts. The case,
however, never came to trial since it was settled by a consent decree
under which White Motor Company agreed to terminate the re-
strictive provisions of its franchise agreements.
Public policy with respect to mergers has had a lengthy and complex
evolution. Many mergers that have decided economic advantages
and appear to be in the public interest are accepted without contro-
versy. Others have such a clearly adverse effect on competition as to
require their being prohibited. As a practical matter, most mergers
fall in between these limits of the legal spectrum, making for extensive
litigation and for difficult decisions as to which mergers to prosecute,
especially in view of the limited resources of the Justice Department
and the Federal Trade Commission compared to those of the merging
Merger cases have been considered under both the Sherman and
the Clayton Acts. The successful resort to Section 1 of the Sherman
Act has been infrequent since, as interpreted by the courts, the law
requires proof that a merger would have the effect of achieving sub-
stantial monopoly power and thus of an actual substantial lessening
of competition. Under the Clayton Act, proof is only required that
the merger may substantially lessen competition.
Section 7 of the Clayton Act originally provided "that no corpora-
tion engaged in commerce shall acquire, directly or indirectly, the
whole or any part of the stock or other share capital of another cor-
poration engaged also in commerce where the effect of such acquisi-
tion may be to substantially lessen competition. . ." This section
was almost totally ineffectual since it did not prohibit one corporation
from acquiring a competitor's assets. This loophole was closed with
the passage of the Cellar-Kefauver Amendment of 1950. The passage
of this Act had an immediate effect on the ability of the Federal Trade
Commission and the Department of Justice to prosecute successfully
cases against proposed mergers.
As a result there has been a nearly blanket prohibition of horizontal
mergers with substantial shares of the market and of vertical mergers
likely to foreclose an appreciable share of some market. The deter-
mination of what constitutes a relevant market and what percent of
that market is to be considered to have substantial anticompetitive
effects has been at the heart of most key merger decisions since 1950,
including notably the Bethlehem-Youngstown case, the Brown
20 White Motor Co. v. U.S. 372 U.S. 253 (1963).
21 U.S. v. Bethlehem Steel Corp. et al., 168 F. Supp. 576 (1958).


Shoe case,2 the Pabst Brewing case,2 the Rome Cable-Aluminum
Company of America case,24 and the Continental Can-Hazel Atlas
As Frederic Scherer has pointed out, "these decisions together
suggest that when one firm acquires a competitor with 3 percent or
more of sales in some relevant market, and when the combined market
share exceeds 20 percent, the probability of judicial disapproval
approaches unity. And mergers may be prohibited when they involve
much smaller market shares, if the industry has a history of rising
concentration." 26
Nor are alleged economies in such mergers considered an acceptable
defense. As the Supreme Court clearly stated in the Philadelphia
National Bank case:
We are clear that a merger the effect of which 'may be substantially to lessen
competition' is not saved because, on some ultimate reckoning of social or eco-
nomic debits and credits, it may be deemed beneficial. A value choice of such
magnitude . has been made for us already, by Congress when it enacted the
amended Section 7. Congress determined to preserve our traditionally competitive
economy. It therefore proscribed anticompetitive mergers, the benign and the
malignant alike, fully aware, we must assume, that some price might have to be
The success of the government in limiting anticompetitive horizontal
and vertical mergers has not carried over into conglomerate mergers
which have grown significantly, especially since 1968. Since con-
glomerate mergers by definition involve companies operating in
different markets, the rationale against such mergers rests more on a
broader interpretation of economic power than that required in a
consideration of horizontal and vertical mergers. It has yet to be de-
cided whether the provisions of the Celler-Kefauver amendment will
be interpreted by the courts broadly enough to encompass purely
conglomerate mergers or whether additional legislation will be
Finally, it should be recognized that the Celler-Kefauver Act allows
for exemptions from its provisions for mergers approved by the Civil
Aeronautics Board, the Federal Communications Commission, the
Federal Power Commission, the Interstate Commerce Commission,
the Securities and Exchange Commission, the United States Maritime
Commission, and the Secretary of Agriculture. While the competitive
aspects of mergers were to be considered by the regulatory agencies,
such consideration has often been deemed by the courts to be second-
ary to other public policy interests. As the Supreme Court ruled in the
1965 Seaboard Airline case, "It matters not that the merger might
otherwise violate the antitrust laws; the Commission has been au-
thorized by the Congress to approve the merger of railroads if it
makes adequate findings that such a merger would be 'consistent with
the public interest.' "29
22 Brown Shoe Co. v. U.S., 370 U.S. 294 (1962).
2 U.S.v. Pabst Brewing Co., et al., 384 U.S. 546 (1966).
24 U. Aluminum Co. of America et al, 377 U.S. 271 (1964).
25 U.S. v. Continental Can Co. et al., 378 U.S. 441 (1964).
26 Scherer, op. cit., p. 481.
27 U.S. v. Philadelphia National Bank et al., 374 U.S. 321, 371 (1963).
28 Further discussion of conglomerate mergers follows below, pp. 24-27.
20 Seaboard Airline Railroad Co. et al., v. U.S. et al., 382 U.S. 154, 156-57 (1965).



A more stringent position came to be taken in the case of bank
mergers, when the Supreme Court in 1963 declared that the Celler-
Kefauver Act standards were fully applicable to bank mergers."
Congress consequently passed the Bank Merger Act of 1966 which
allowed the Comptroller of the Currency to approve mergers after
finding that the anticompetitive effects of the merger are "clearly
outweighted in the public interest by the probable effects of the trans-
action in meeting the convenience and needs of the community to be
However, in 1967, the Supreme Court again upheld the Celler-
Kefauver Act criteria as applicable in deciding whether competition
would be substantially lessened in bank mergers and stating that the
merger partners had the burden of proving that anticompetitive effects
of the merger were clearly outweighed by its advantages.3' Although
subsequent cases have sustained challenges to bank mergers by the
Justice Department-even after they have been approved by the
Comptroller of the Currency 32-the Court has, recently, been apply-
ing a more lenient anticompetitive standard in order to sustain the
legality of certain bank mergers.3
The difference in focus of the Sherman and Clayton Acts, as re-
flected especially in their interpretation by the courts, has been noted
above (p. 10) and also by several scholars. Thus, for example, Earl
Kintner states that "except in the area of per se violations, the Sher-
man Act is not violated unless actual and substantial adverse competi-
tive effects have been proved. With the Clayton Act, on the other
hand, illegality can be found in conduct which has the probable result
of substantially lessening competition." 14
Similarly, Peter Asch writes:
Competition and monopoly are treated primarily as phenomena uf conduct
under the Sherman Act and structure under the Clayton Act. The Sherman Act
tends to deal with flagrantly anticompetitive practices often promulgated by
firms holding substantial market power; the Clayton Act, on the other hand,
deals more with borderline practices that may not be inevitably anticompetitive,
and with mergers whose effect may be to create substantial market power when
it did not previously exist.... Under present construction of the Sherman Act, an
effectively monopolized industry need not violate the law; whereas under the
Clayton Act, events that reflect competition may be said to lessen competition
if they damage the interest of some firms. This does not imply that the laws in
general work poorly, but it does indicate that our legal system has not yet come
to grips with some rather basic questions.35
The difference noted by Asch may also reflect a disposition in many
courts to refrain from restricting major existing corporations, at
least in part for fear of disrupting efficiencies that are believed to be
integral to present size and management; whereas the same kind of
restraint does not pertain to proposed mergers. Here greater weight
seems to be placed on the likely adverse effect on competition by
a merger than on possible gains in efficiency.
This dual approach led the economist William G. Shepherd to
note, in 1970, that "there have been almost no direct efforts during
the last 15 years to reduce concentration, only to restrain its rise
30 U.S. v. Philadelphia National Bank et a., 374 U.S. 321, 371 (1963).
s1 U.S. v. First City National Bank of Houston et al., 386 U.S. 361 (1967).
32 E.g., U.S. v. Phillipsburg National Bank, 399 U.S. 350 (1970).
33 E.g., U.S. v. Connecticut National Bank, 418 U;S. 656 (1974); and U.S. v. Marine Bancorporation
418 U.S. 602 (1974).
34 Kintner, Earl W. An Antitrust Primer (2nd edition). New York, Macmillan, 1973, p. 22 (Italics in the
36 Asch, Peter. Economic Theory and the Antitrust Dilemma, p. 392-393.


through merger. This double standard towards mergers and existing
concentration has had the effect of acquiescing in the positions of the
established leading firms in highly concentrated industries." 3 Further
he wrote, "If the dissolution of existing firms (however dominant
their position) has now virtually disappeared from the antitrust
arsenal, it is largely because of its potential downward impact on
share prices." 17 Finally, "though one would be unduly harsh to call
it a 'charade', antitrust policy has now largely acquiesced in, and there-
fore ratified, existing market structure." 38
This view coincides with that of Peter Asch, already noted above
(p. 2) when he wrote in 1970 that "it appears that the courts and the
federal agencies have been reluctant to tamper with existing firms
and markets almost as a matter of ethical principle." 11
3. Federal Trade Commission Act of 1914
The third of the basic antitrust acts, the Federal Trade Commission
Act, was designed to provide more effective investigative and ad-
judicatory functions necessary for more adequate implementation of
the Clayton and Sherman Acts than was felt could be performed by
the Department of Justice's Antitrust Division. The Act established
the Federal Trade Commission, consisting of five commissioners, as
an independent, quasi-judicial agency, to complement the enforcement
effort of the Department of Justice and, under Section 5, to prohibit
"unfair methods of competition." It was thus expected that the FTC
would develop special competence in evaluating the structure and
functions of American business in the interest of maintaining competi-
tion. Its investigatory functions have provided the basis for a number
of remedial trade acts, including the Securities Act of 1933, the Secu-
rities Exchange Act of 1934, the Public Utility Holding Company
Act of 1935, and the Celler-Kefauver Act of 1950.
Under its broad mandate, the FTC has taken action against such
practices as:
price fixing, boycotts, exclusive dealing and tying agreements, price discrimina-
tion, mergers, bribing the employees of vendors and customers, exerting reciprocal
purchasing leverage, business espionage, disseminating derogatory information
about rival products, harassing competitors through protracted patent and other
litigation with predatory intent, selling products below cost with predatory
intent, selling merchandise by means of lotteries, and luring large number of
rival employees to break their employment contracts.40
What has come, since 1938, to be its largest single function is its
work against false and misleading advertising. This has been done
under provision of the Wheeler-Lea amendment of 1938 which
extended the responsibility to the FTC to combat "deceptive acts or
practices in commerce."
It is clear from this list of its activities that some overlapping of
jurisdiction between the Federal Trade Commission and the Depart-
ment of Justice has been unavoidable. Both the Justice Department
and the FTC may institute civil actions against violations of the
34Shepherd, William G. Market Power and Economic Welfare. New York, Random House, 1970, 1;20%
'7 Ibid., p. 101.
8 Ibid., p. 16..
"Asch, Peter, op. cit., p. 401
" Scherer, op. cit., p. 517.


Sherman and Clayton Acts. In practice, there appears to be little dupli-
cation, both because the areas in which each agency functions are so
broad and resources so limited that each agency tends to confine its
efforts to cases it deems most important at the time and because the
FTC also has a broad mandate to oppose fraud and misrepresentation
outside the antitrust area. Usually the two agencies work well together.
Neither starts an investigation without clearing it with the other.
Price discrimination cases under the Robinson-Patman Act are usually
prosecuted by the FTC. The FTC also handles most investigations
of the food and textile industries, while the Antitrust Division almost
always handles cases involving the steel industry.
While the preponderance of the antitrust legislation is clearly on
the side of preserving and extending competition as a national policy,
there are within the antitrust legal framework acts which would limit
the full impact of competitive forces.41 The most important of these
are the Robinson-Patman Act, the Miller-Tydings Act and the
McGuire Act.
1. Robinson-Patman Act of 1936
Probably the most controversial of all the antitrust laws and the
one most widely criticized by economists, by and large, is the
Robinson-Patman Act. Dirlam and Kahn call it "one of the most
tortuous legislative pronouncements ever to go on the statute books." 42
Condemnation of Robinson-Patman is not unanimous, however.
Thus Earl Kintner wrote:
If we did not have a Robinson-Patman Act, it would be necessary to invent
one. The imperviousness of the Act to amendment is a significant indication
that it was and is a response to a definite need. Therefore, however much we
may decry the law's defects, we must recognize that a broad consensus supports
its two primary objects:
1. To prevent unscrupulous suppliers from attempting to gain an unfair ad-
vantage over their competitors by discriminating among buyers.
2. To prevent unscrupulous buyers from using their economic power to exact
discriminatory prices from suppliers to the disadvantage of less powerful buyers.43
The genesis of the Robinson-Patman Act is clear. The 1920's and
1930's witnessed the rapid rise in the growth of chain stores in several
lines of retailing, which was accompanied by increasing hardship
for and frequent failures of smaller independent businesses. Since
much of the advantage of the chain stores was seen in their ability to
pressure suppliers into granting them substantial price concessions,
and to cut prices selectively in order to put independent rivals out
of business, there was great pressure to take legislative action which
would help redress the balance. The Robinson-Patman Act of 1936
was the result.
The principal provisions of the Act may be summarized as follows:
Section 2 a, the heart of the Act, prohibits sellers from dis-
criminating in price in sales of goods of "like grade and quality,"
except when justified by differences in cost.
41 Other legislation limiting competition, such as regulatory legislation mentioned above, Is significant,
but outside the main focus of this report.
4 Dirlam, Toel B. and Alfred E. Kahn. Fair Competition, the Law and Economics of Antitrust Policy;
Ithaca, Cornell University Press, 1954, p. 119.
Kintner, Earl W, op. cit., p. 61.


Section 2 b provides that price discrimination is not unlawful
if made in good faith to meet an equally low price of a competitor.
Section 2 c prohibits the payment of brokerage commissions,
or allowances or discounts in lieu thereof, except where actual
brokerage services are provided.
Section 2 d and e prohibit a seller from granting discriminatory
allowances and services and facilities to a buyer unless such
assistance is made available to other competing buyers on equal
Section 3 prohibits a seller from providing certain secret allow-
ances to the buyer and forbids territorial price reductions or sales
at unreasonably low prices where the seller's purpose is to destroy
competition or to eliminate a competitor.
The problems of determining when discrimination is illegal, how
to interpret "good faith" of a firm in meeting the price of a competitor,
and what are accepted differences in costs, have defied solution in
any broad sense. The Federal Trade Commission, charged with the
enforcement of the Act, has not been able to achieve a clear-cut
direction in its policies under the Act.
The legal and economic difficulties with the Act were clearly por-
trayed by Kaysen and Turner, as follows:
In its language, legislative history, and application, the [Robinson-Patman]
Act has run into three important dilemmas. First, its basic purpose has not been
clear: it points in two directions. One is the suppression of discrimination as an
anticompetitive practice; the other, the protection of small individual firms from
price disadvantages in their transactions in the market.. . The second dilemma
is that it has concentrated its attention on price differences rather than on price
discrimination. . Finally, and perhaps most important, the Act creates an
administrative dilemma of formidable proportions: on the one hand, the Com-
mission must set a standard which is enforceable, which requires some precision;
on the other, it must pay some attention to practicalities, which requires some
looseness and discretion. The most difficult area in which this dilemma arises is
that of cost justification.. . The difficulties of defining what constitutes meeting
of competition in "good faith" are also formidable."
Nonetheless, attempts to amend or repeal the Act have been
vigorously, and thus far successfully, resisted. As recently as the fall
of 1975, the Department of Justice prepared proposals to repeal or
substantially amend the Robinson-Patman Act. This evoked creation
of an Ad Hoc Subcommittee on Antitrust, the Robinson-Patman Act,
and Related Matters of the House Committee on Small Business.
Its hearings between November 5, 1975 and March 23, 1976, were
devoted very largely to support of the Act and opposition to amending
it to any significant degree.
2. Resale Price Maintenance Laws
The two Federal resale price maintenance laws, the Miller-Tydings
Act and the McGuire Act, can be dealt with summarily since the
Consumer Goods Pricing Act of 1975, passed in December 1975,
repealed their provisions. Resale price maintenance laws allow manu-
facturers to enforce the minimum prices at which their trade-marked
products may be sold at retail. In the 1930's, retailers, hard-pressed
by depression and growing competition from chain stores and dis-
44Kaysen, Carl and Donald F. Turner. Antitrust Policy, an Economic and Legal Analysis. Cambridge,
Harvard University Press, 1959, p. 181-182.


count operations, convinced several State legislatures to pass State
resale price maintenance laws. This covered only intrastate trans-
actions, however. To be effective on an interstate basis, the Congress
was persuaded in 1937 to pass the Miller-Tydings Act which amended
Section 1 of the Sherman Act, exempting from antitrust prohibition
contracts prescribing minimum prices for the resale of trademarked
goods sold "in free and open competition with commodities of the
same general class produced or distributed by others" where such
contracts were authorized by State law. The Federal law proved
ineffective when, in 1951, the Supreme Court ruled that it exempted
only express contracts to prescribe minimum prices on goods in in-
terstate commerce and was not binding on non-signing retailers. This
loophole, from the point of view of resale price maintenance advo-
cates, was closed by the McGuire Act which permitted enforcement
of resale price maintenance on non-signers where State laws permit.
However, inflationary pressures and the success of discount houses
and other retail outlets offering goods in competition to fair-trade
items led to the repeal of fair trade laws in many States and the
recognition that they were a form of price fixing that was having a
perceptibility adverse effect on consumer purchasing power. Repeal
has been achieved with only slight protests and with little impact
on retail trade.

For reasons that have already been suggested above (pp. 1-3), there
have been relatively few attempts at empirical assessment of the
impact of antitrust laws on the economy. Virtually without exception
the attempts that have been made have been considered, even by
their authors, as tentative and relatively inconclusive.
Perhaps the first significant attempt at such an evaluation was
made in 1966 by George Stigler. In his article, "The Economic Effects
of the Antitrust Laws," published in the Journal of Law and Econom-
ics, he reached the following conclusions:
The substantive findings of this study are meager and undogmatic:
1. The Sherman Act appears to have had only a very modest effect in reducing
2. The 1950 Merger Act has had a strongly adverse effect upon horizontal
mergers by large companies.
3. The Sherman Act has reduced the availability of the most efficient methods
of collusion and thereby reduced the amount and effects of collusion.'
He adds that "even the strongest [of the above conclusions] (on the
effects of the anti-merger statute) is not overpowering in the volume
or pointedness of the evidence." 2
However, it seems unlikely that one will find sharp demurrals from
Stigler's conclusions. During the decade since Stigler's article, econo-
mists and others have noted that even if the evidence of impact of
antitrust laws on concentration is meager, incomplete, and at times
contradictory,3 it is clear that certain specific practices have been
effectively curbed. Stigler speaks of the reduction in the amount and
effects of collusion. Shepherd states:
Cooperation has been reduced and altered. Formal cartel agreements have
mostly been eliminated. What remains is covert, more fragile, and mainly among
lesser firms in lesser industries.
The strict line against cooperation appears to be close to the optimal-where
it applies.'
Scherer notes that the United States, unlike nearly all other in-
dustrialized Western nations, has adopted an antitrust policy which
holds explicit price-fixing and output-restricting agreements per se
illegal, without regard to their reasonableness.5
The consensus that certain anti-competitive practices have been
effectively stopped or diminished has an important corollary that is
implied in the statements just cited-namely, that although specific
Stigler, George J. The Economic Effects of the Antitrust Laws. Journal of Law and Economics, v. 9,
October 1966: 236.
2 Ibid, p. 237.
3Diffiulties in measurement of concentration are discussed on pp. 32-34.
4 Wilcox, Clair and William G. Shepherd. Public Policies Toward Business. 5th ed. Homewood, Illinois,
Richard D. Irwin, 1975, p. 285. (Italics in original.)
SScherer, F. M. Industrial Market Structure and Economic Performance, p. 453.


trade practices have been outlawed, circumventing the discipline of
competition has commonly been achieved by other means. This is
well stated by Scherer as follows:
The law is more permissive with respect to subtler forms of conduct which
could have the same effect as explicit agreements. Oligopolists refraining from
price competition because they recognize the likelihood of rival retaliation do
not violate the law as long as their decisions are taken independently. And by
avoiding any suggestion of encouraging or compelling rivals to cooperate, they
may also facilitate uniform and non-aggressive pricing through such devices as
price leadership and open price reporting systems.. These limitations in the law
prevent the reign of competition from being carried as far as it might conceivably
Some of the proposals to erase these limitations are considered in
Chapter VI of this report.
In a similar vein, Peter Asch has written:
Prosecution under Section 1 of the Sherman Act . has tended to penalize
formal and overt conspiracy, but has been far more lenient with informal and
tacit forms of parallel business behavior. It is therefore conceivable that although
some firms have abandoned collusive patterns that they know to be illegal, they
have simply substituted different patterns that, although more "legal", are no
less collusive. The law may not have induced greater independence in decision
making, but rather may have forced firms to adopt relatively difficult and in-
efficient methods of collusion. If this has in fact been the case, then the economic
implications of Sherman Act enforcement may be rather limited.7
A different approach to measure the impact of antitrust law was
taken in 1970 by Richard Posner of the University of Chicago Law
School, based on statistics of cases and proceedings before the Depart-
ment of Justice and the Federal Trade Commission.'
He suggests that inadequate planning and inefficient enforcement
in these agencies have seriously curtailed the impact on the economy
these agencies might otherwise have. Thus he concludes:
So far as I am able to determine, the Department of Justice, to take the most
distinguished component of the antitrust enforcement system, makes little effort
to identify those markets in which serious problems of monopoly are likely to
arise; except in the merger area, does not act save on complaint; makes no sys-
tematic effort to see whether its decrees are being complied with; keeps few worth-
while statistics of its own activities-and none on those of other components of
the enforcement system; does not have adequate records of the criminal and
civil penalties imposed on the defendents in its cases; makes no systematic effort
to identify repeated violators of the antitrust laws; routinely prosecutes all
reported per se violations, including agreements to fix prices that, considering
the nature of the product and the conspirators' market share, are almost surely
unsuccessful attempts; and is, in short, inappropriately run as a law firm, where
the workload is determined by the wishes of the clients (in this case mostly
unhappy competitors, aggrieved purchasers, and disgruntled employees), and
where the social product of the legal services undertaken is not measured.9
Three years later, William F. Long, of the Federal Trade Com-
mission, Richard Schramm of Cornell University, and Robert Tollison
of Texas A&M University published a study, based in part on Posner's
data on Federal antitrust activities, in which they attempt to deter-
mine whether cases are brought where they could be expected to have
the most impact on economic welfare.'0

I Ibid., p. 453.
7 Asch, Peter. Economic Theory and Antitrust Dilemma, p. 395.
s Posner, Richard A. A Statistical Study of Antitrust Enforcement. Journal of Law and Economics, v. 13,
October 1970: 365-419.
9 Ibid., p. 419.
10 Long, William F., Richard Schramm, and Robert Tollison. The Economic Determinants of Antitrust
Activity. Journal of Law and Economics, v. 18, October 1975: 559-574.


To this end, the authors make a comparison between a benefit-cost
model of desirable antitrust behavior and actual antitrust activity.
Although with considerable qualifications, the authors found that, on
the basis of models tested, economic variables could account for at
best 60 percent of cases brought by antitrust agencies. Of the industry
economic characteristics that were a factor in determining antitrust
case bringing activity, the most important was found to be industry
size, as measured by sales. Less important in explaining antitrust
activity were variables more closely measuring actual or potential
monopoly performance, such as profit rate on sales, concentration,
and aggregate welfare losses.
Thus Posner's conclusions were provided with more substantial
rational underpinnings.
More recently two articles in the October 1975 issue of the Journal
of Law and Economics provide further qualifications to the results of
Posner and Long and his co-authors. John Siegfried, in "The Deter-
minants of Antitrust Activity," 11 makes several changes in the
empirical tests of Long et al., based on different less aggregated data
sources, mostly from Internal Revenue Service Corporate Income Tax
Return data for 1963. Siegfried confirms that industry sales appear to
be a strong variable in explaining antitrust activity, but that the
direction of its effect is not stable across alternative models. Basically,
Siegfried finds that "economic variables have little influence in the
Antitrust Division." 12
Siegfried suggests that the reason for the lack of influence of eco-
nomic variables in antitrust activity may lie in the reward structure
confronting decision makers in the Antitrust Division. This structure
makes it "probably more important to win cases than to reduce
economic losses or inequities in order to move up the success ladder
in the Justice Department." 13 He concludes further: "The absence
of a measure of the deterrent and bargaining effects of the Antitrust
Division's winning percentage in trial cases may well omit the most
important sources of economic benefits produced by antitrust
activity." 14
A different modification of the conclusions of Long et al. was reached
by Peter Asch in an article, "The Determinants and Effects of Anti-
trust Activity." "5 He explored further than Long et al. the role of
industry size as a determinant of casebringing patterns. He concludes
"that the effect of industry size on antitrust activity is in a sense
attributable both to numbers of firms and to average size of firms
within industries. In addition, these factors interact such that the
effect of either depends directly on the level of the other." 16
More fundamentally, he believes that "casebringing activity can-
not be characterized as predominantly 'rational' or predominantly
'random' on the basis of the industry variables examined." 17
It Siegfried, John 1. The Determinants of Antitrust Activity. Journal of Law and Economics, v. 18
October 1975: 559-574.
SIbid., p. 573.
1 Ibid., p. 573.
14 Ibid., p. 573.
IsAsch, Peter. The Determinants and Effects of Antitrust Activity. Journal of Law and Economics, v. 18,
October 1975: 575-581.
1Ibid., p. 580.
17 Ibid., pp. 580-581.


These studies by Posner, Long et al., Siegfried, and Asch all suggest
that decision making and procedural deficiencies in the Department
of Justice and the Federal Trade Commission may have been fully as
responsible as weaknesses in the law or the impact of judicial decisions
for the limited impact antitrust has apparently had on the economy.
Most economists would probably agree that while antitrust laws
have had an impact on the pattern of business behavior, curtailing
some of the most blatant anti-competitive practices-this is particu-
larly true in the case of horizontal mergers that tend to create a sub-
stantial degree of monopoly-there is no evidence that they have had
any measurable effect on the amount of market concentration in the
Why has this happened? First, it seems clear that antitrust laws
understandably lag behind changes in business structure and practices.
Most such laws are geared to deal with business conditions of one or
more generations past. They are ill-adapted to deal with such phenom-
ena as the wave of conglomerate mergers of the 1960's, the growth
of multinational corporations, the increasing resort to joint ventures,
and the rising influence of financial intermediaries. They are geared
to a concept of monopolization that matches poorly actual oligopolistic
behavior in many large firms.
As Corwin Edwards has recently pointed out, our legal antitrust
concepts focus on monopolization practices of the big enterprise,
rather than upon the impact of the large firm on the conduct of its
competitors. Thus:
the concept became a bad fit for the types of concentrated power that are more
numerous and, in the aggregate, more important than monopolization. The
concept is not extensive enough to cover instances in which the big enterprise has
significantly preponderant influence that falls short of control. Such instances are
common. Competitors of the big enterprise are intimidated, not by its threatening
conduct, but by their own awareness of what it could do and their desire not to
provoke it to do that.18
He concludes, therefore, that:
our legal controls are not adequate to prevent the big from attaining such de-
grees of influence over many smaller enterprises that the latter become quasi
vassals. With brands, access to credit, and expertise in technology and in marketing
skills concentrated in the large enterprise, these can be used by that enterprise to
establish relationships with small firms, especially with distributors, that incre-
mentally deprive the latter of ability to do without the help of the former. The
present status of franchising illustrates how far such relationships can be carried
and how numerous they are. Although such phenomena probably have contributed
substantially to concentration of the authority to make decisions, and the whole
process has been under continuous antitrust scrutiny, the antitrust laws have been
and can be applied only to limited aspects of them.9

One of the basic reasons why a valid assessment of antitrust law and
enforcement on the economy is so elusive lies in the unknown and
probably unknowable deterrent effect of these laws. Just as the value
of the cop on the beat probably is greater in terms of the extent to
Is Edwards, Corwin D. Policy Toward Big Business; What Lessons After Forty Years? Journal of Eco-
nomic Issues, v. 9, June 1975: 349.
19 Ibid., p. 352.

# 21

which his presence deters committing of crime than in the number of
arrests he makes, so the chief usefulness of antitrust laws may rest in
their impact on decisions of corporate executives to forego actions that
would violate antitrust law. This conclusion has been stressed by many
analysts and students of antitrust. Thus Peter Asch, for example,
writes: "The finding of illegality in one merger is not in itself so im-
portant as the possibility that one hundred other mergers may be
abandoned or never contemplated seriously because of that ruling." 20
The thought is reflected in that adage that "the ghost of Senator
Sherman sits at the board table of every large corporation." Simi-
larly, in 1964, the historian, Richard Hofstadter, wrote:
It is one of the strengths of antitrust that neither its effectiveness nor its ineffec-
tiveness can be precisely documented; its consequences rest on events of unknown
number and significance that have not happened-on proposed mergers that may
have died in the offices of corporation counsel; on collusive agreements that have
never been consummated; on unfair practices contemplated but never carried out.21
In greater detail, Justice Abe Fortas noted:
The non-visible part of antitrust is the most important part of it. That part is
the implementation of antitrust in the offices of corporations, spurred by the ad-
vice of their lawyers and the example presented by the misfortunes of their friends-
your clients and my clients who have been selected as the objects of antitrust
Fundamentally, it is not the action taken by the FTC or the Antitrust Division-
certainly not the reported cases-but the private corporate decisions that reflect
the impact of antitrust. It is these corporate decisions, taken on the basis of fear
of prosecution, as well as the less emphatic moral and legal inducements to obey
the law, that antitrusters rely upon to contribute to the national well-being. The
larger effects of antitrust cannot be found in the law books. They cannot be found
in the actions instituted or the actions completed. They can be found in the day-to-
day decisions of corporate managers.22
And these decisions are of course usually impossible to document.

It was noted at the outset of this report (p. 2), that antitrust law
and enforcement has tended towards the preservation of the status
quo. There are cogent reasons for this development. It is quite appar-
ent from many%, court decisions that dissolution of existing firms, even
where evidence of monopolistic practices was conclusive, has been
rarely required, in large measure because of the belief that adverse
effects on employment, investment, and production might be sut-
stantial. Some observers also trace a reluctance to prosecute large
oligopolistic firms to a reliance upon such firms to finance costly
political campaigns.
The attitude towards mergers has been quite different. Here it is a
proposed new corporate structure which is being judged. In this case
the antitrust agencies and the courts have been far less reluctant to act.
It is also true, as the studies of Long et al., Asch and Siegfried cited
above show (pp. 18-20), that the focus of antitrust activity in the
Justice Department and the Federal Trade Commission has been
geared less to changing the structure of industry to make it more
competitive than to act upon complaints by competitors, opting more
0Asch, Peter. Economic Theory and the Antitrust Dilemma, p. 395.
21 Hofstadter, Richard. What Happened to the Antitrust Movement? In Cheit, Earl F. (editor). The
Business Establishment, p. 150. (Italics in original.)
23 Fortas, Abe. In American Bar Association. Section of Antitrust Law. Proceedings at the Annual Meet-
ing, Chicago, Illinois, August 11-13, 1963, p. 325-326.


often for those cases where the probability of winning a case was
greater rather than favoring cases with greater probability of promot-
ing competition in an industry or in the economy more generally.
This again is due at least in part to the fact that our antitrust policies
are geared more to challenging certain monopolistic practices that are
specifically proscribed by law than to try to decrease monopoly per se
by creating a more competitive industry structure.
Put another way, antitrust policies reflect a criminologist's approach
to economics. As a recent article observes, antitrust "seeks to punish
or deter unwanted behavior; it supplies no model of desired behavior.
And as in other lines of police work, the prosecution of misconduct is
subject to many personal whims and political interventions." 23

In summary, the following conclusions appear warranted:
1. Antitrust laws have had a significant effect on certain forms
of anti-competitive behavior that have been specifically prohib-
ited under the law. Proposed mergers that clearly increase market
concentration beyond acceptable limits and other practices out-
lawed per se have become much less common. The overall pattern
of business practices has been changed from what it would have
been in the absence of antitrust law.
2. Although certain outlawed practices have fallen into disuse,
there is no solid evidence on the extent to which monopoly and
econonmic concentration have been curbed thereby. Monopoly
and increased concentration have been achieved in many ways
that are not illegal as interpreted by the courts.
3. The extent to which antitrust laws have made our economy
more competitive than it otherwise would have been is probably
unmeasureable, since their primary impact has been on the nature
of decisions reached by corporate boards of directors, in pro-
ceedings that remain confidential.
4. There is a lack of consensus both as to how much market
concentration and monopoly have been growing and the impact
which antitrust law may have had on their growth. Tentatively,
it seems reasonable to conclude that antitrust law has had some
effect in decreasing the extent of monopoly power, but that the
effect has not been very substantial.
5. The extent to which market concentration has grown is
probably more a function of economic and technological forces,
such as economies of scale, patents, and rivalry in world markets,
than of legal restraints.
6. It may be possible to modify government policy in several
ways that would be likely to make the national economy more
competitive, including (a) more effective administration and
enforcement of existing antitrust law; (b) revision of antitrust
law to make it a more effective tool in dealing with monopolistic
practices and power that have developed in recent years; and (c)
modification of other government policies that have an adverse
effect on competition. Some of these proposals are discussed
in chapter VI.
23 Barnes, Peter and Derek Shearer. Beyond Antitrust. New Republic, v. 171, July 6, 1974: 17.

It may be well to turn to some current problem areas of antitrust
before proceeding to the forms of remedial action referred to in the
preceding paragraph. These include the issue of conglomerate mergers,
bigness, multinational corporations, political influence of large corpora-
tions, and the influence of financial intermediaries.

The phenomenon of conglomerate mergers has evoked widespread
study and controversy in the last two decades.' Especially during the
1960's, such mergers grew rapidly, while horizontal mergers declined
and vertical mergers showed no definite trend up or down.2 It seems
clear that the Celler-Kefauver Act (discussed above, pp. 10-12) has
proved to be reasonably effective in preventing significant anti-
competitive horizontal and vertical mergers but was having relatively
small effect on conglomerate mergers. As a result, there are major
differences of opinion on both the possible threat to competition
represented by conglomerate corporations, and the extent to which
legislation may be needed to deal with them, if they prove to be in
fact serious impediments to competitive enterprise. Some of the
reasons for the controversy are not hard to discover.
The first arises from the definition of a conglomerate merger itself-a
merger of companies operating in separate and distinct markets.
Since the basic thrust of antitrust law is to assure the maintenance
of competition in a particular market, the merger of firms which do
not compete in the same market can be argued by definition not to
result in anticompetitive behavior. And this is in fact what is claimed
by many economists.
While arguments for conglomerate mergers may be much the same
as for other mergers in terms of greater efficiency and more economical
use of resources, particular stress should probably be placed on the
superior ability of conglomerate firms to obtain readier and cheaper
access to capital funds. This has been well expressed by Oliver
Williamson as follows:
In an economy . where returning funds to and reallocating funds by the
capital market incurs nontrivial transactions costs.., the internal reallocation of
resources to higher yield uses is what most commends the conglomerate as com-
pared with similarly constituted specialized firms. The conglomerate in these
circumstances assumes miniature capital market responsibilities of an energizing
See especially the special issue of the St. John's Law Review, Conglomerate Mergers and Acquisitions:
Opinion and Analysis, v. 44, Spring 1970, 1171 p. Includes a bibliography, pp. 1163-1171.
2See especially: Mueller, Willard F. The Celler-Kefauver Act: Sixteen Years of Enforcement. Staff Report
to the Antitrust Subcommittee, Committee on the Judiciary. U.S. House of Representatives, 1967, 67 p.;
and U.S. Congress. House. Committee on the Judiciary. Subcommittee. No.5. Investigation of Conglomer-
ate Corporations. A Report by the Staff. 1971, 703 p. (Based on Subcommittee hearings held in 1969 and 1970.)


Once it is conceded . that the capital market incurs nontrivial transaction
costs in resource allocation and management surveillance respects, there is plainly
a case for encouraging, or at least not impeding, organizational innovations which
have the potential to attenuate internal organizational distortions. . Except,
therefore, among giant-sized firms, where the risk of offsetting social and political
distortions is seriously posed, a more sympathetic posture by the antitrust en-
forcement agencies toward conglomerates would seem warranted.,
In fact, government policy may have the effect of fostering con-
glomerate mergers. Section 7 of the Clayton Act itself may serve to
encourage a company wishing to expand to look outside its industry
for opportunities to grow and invest.
As William Shepherd has noted:
Antitrust fears may lead a dominant firm to forage elsewhere for growth and
investment opportunities. Indeed, the tighter the antitrust constraint against
increased market shares, the more will excess internal resources (especially profits)
accrue and seek outlets.4
Tax laws have also facilitated mergers, especially conglomerate
mergers. Many mergers of the 1960's took advantage of the corporate
income tax deduction accorded interest paid on debt securities such
as bonds and convertible debentures, as against the tax liability
of dividends paid on common stock, by providing for an exchange
of common stock for debt securities. This provision was curtailed,
but not entirely eliminated, by the Tax Reform Act of 1969.
High tax rates on dividends may also serve to encourage small
family businesses to merge with another company. Once a small
business becomes profitable, the combination of corporate income
taxes and high individual tax rates may act to encourage mergers,
since in a merger the individual gets stock which he can sell and pay
taxes at the lower capital gains rates.
In addition, tax-free reorganization may encourage concentration
in the following manner:
Since a sale of a business is always a taxable transaction to the sellers and a
merger is not, there is an inducement for owners of a closely held corporation to
accept a merger offer rather than a purchase offer if the acquiring company's
stock is felt to be a good investment. Assuming a capital gains tax rate of 35 per-
cent, a gain on the sale would have to be over one-half again as great as an in-
crease in stock holding through a merger to produce the same after-tax result.
This effect, of course, would not be as great, if the tax law did not allow the pos-
sibility of avoiding the capital gains tax entirely by holding onto the property
and passing it on at death, but with a stepped up basis.
In such a case the tax deferral advantage becomes a tax forgiveness.5
The estate tax may also encourage mergers.
In many cases the family business may represent the bulk of the estate and
sufficient funds may not be available to pay the estate tax. In addition, a closely
held business whose stock is not publicly traded presents substantial difficulties in
valuation. Selling a portion of the family business to pay the estate tax may be
difficult and even very detrimental for continued operation of the business. The
merger of the business to a larger firm presents many advantages in solving these
problems. A merger offer qualifying as tax free does not result in taxation, and
even with the step up in basis at death may mean that the gain in value will
never be taxed under the income tax. A merger which results in the holding of a

3 Williamson, Oliver. Markets and Hierarchies: Analysis and Antitrust implications. New York, Free
Press, 1975, p. 259-260.
4 Shepherd, William. Market Power and Economic Welfare, p. 43.
Gravelle, Jane G. Tax Provisions Affecting Business Concentration. In: U.S. Committee on Government
Operations. Subcommittee on Budgeting, Management, and Expenditures and Subcommittee on Inter-
governmental Relations. Corporate Disclosure. Hearings . April 23-May 21, 1974, Part 2, p. 623-624.


publicly traded stock helps to deal with both the valuation problem and estate
tax problem which require a partial liquidation of assets.6
Nevertheless, there are several grounds on which conglomerate
mergers can be, and have been, challenged. Some of the practices
which have led to the prosecution of conglomerates include the fol-
lowing violations of antitrust law: (1) predatory pricing tactics against
firms in a single product or geographical market; such tactics often
involve cross-subsidization, by which a firm uses profits obtained in
one industry to subsidize sales at a loss or at a below normal rate
of profit in another industry; (2) agreements for reciprocal purchasing
of customers' products; and (3) explicit or tacit agreement to limit
competitive activity in a rival sphere of influence. Such an agreement
to limit competitive activity may result when management of a
conglomerate considers that a competitive attack upon a rival con-
glomerate is likely to result in retaliation in an industry vital to it.
Thus it will be likely to abstain from such an attack; and the larger
the number of industries in which conglomerates face one another,
the stronger the probability of mutual forebearance. Cases have also
been brought against conglomerates where they have been shown to
cause a reduction in potential competition, and where the reduction
in the number of independent companies has lessened the incentives
and capability of competitive innovation.
There is disagreement as to the extent to which conglomerate enter-
prises engage in allegedly anticompetitive practices, such as those
referred to above, and further, when they do, whether such practices
are due to the fact of being a conglomerate, or rather the fact that
the firm has reached a size that gives it the power to engage in such
practices. The issue is further clouded by the fact that almost all of
the largest corporations are to some degree conglomerate enterprises
whose operations are highly diversified both in terms of product and
in terms of physical location.
Walter Adams stressed the dangers of conglomerate mergers as
Conglomerate power does make a difference. It derives not from monopoly or
oligopoly control of a particular market, but from diversification over a whole
range of markets. It enables a firm, endowed with absolute size and the deep
purse, to "outbid, outspend, and outlose" its smaller rivals, and thus to insure its
survival almost irrespective of its performance. Finally, as recent events have
demonstrated, it conveys a unique access to political power and the opportunity
to transform the state into an instrument of privilege creation and protection. 7
Similarly, Corwin Edwards notes:
When in some part of its business [a large diversified enterprise] competes with
enterprises that are substantially smaller and less diversified, its power to coerce
and intimidate them is like, but usually greater than, the power that it can
obtain from differential size alone .... If it chooses to compete with special vigor
in one field, the specialists that it injures there are unlikely to be able to invoke
antitrust protection. Antitrust does not require that diversified enterprises
make profits of similar proportions in each line of activity, and cannot easily
distinguish funds transferred from one product to another in order to intimidate
or injure competitors from funds similarly transferred for other purposes.8
Ibid., p. 630.
7Adam Walter. Corporate Power and Economic Apologetics: A Public Policy Perspective. In: Industrial
Concentration: the New Learuing, p. 368.
8 Edwards, Corwin D. Economic Concepts and Antitrust Litigation: Evolving Complexities. Antitrust
Bulletin, v. 19, Summer 1974: 316-317.


William James Adams of the University of Michigan goes further
in arguing that failure of the antitrust enforcement agencies to prose-
cute conglomerate mergers is based on two faulty premises:
(1) That horizontal dominance somewhere is required for a firm or group
of firms to explain any monopoly power latent in the existing industrial
(2) That horizontal dominance somewhere is required for a firm or group
of firms to alter the industrial environment in such fashion as to increase
the amount of monopoly power latent therein.9
These premises, he argues, keep courts and regulatory agencies
mired in "the quagmire of artificial market delineation." 10 William
Adams maintains that on the contrary two other hypotheses are more
realistic and would provide a sound rationale for legislation attacking
the conglomerate problem more directly, namely:
(1) Where firms operate in multiple markets, the likelihood of collision
and the height of barriers to new competition depend on some factors simply
not detectable by individual market analysis;
(2) where firms enjoy large total scale, they are likely to benefit from pref-
erential access to power investment funds and cheaper costs for power invest-
ment projects, facilitating transformation of the existing industrial structure
into one increasing the extent of corporate power."
On the other hand, Jesse Markham in his 1973 study, "Conglomerate
Enterprise and Public Policy," concludes:
There is little if any evidence that diversified companies, simply because of their
diversification, present special problems beyond the reach of our antitrust policy
as presently administered.
As companies reach a threshold of diversification, such matters as pricing and
related market activities increasingly are made a matter of divisional autonomy.
This means that in day-to-day operations divisions of conglomerates function very
much the same as undiversified companies. Moreover, the evidence is fairly per-
suasive that highly diversified companies are certainly no more, and may even be
less, given to the practice of reciprocity than large corporations generally .
We are led then to the conclusion that highly diversified firms (or, if one prefers,
conglomerates) present no special antitrust problems, and require no special
antitrust policy. The decade of the 1960's witnessed the spectacular rise of about
25 new conglomerates, and a significant increase in overall company diversifica-
tion. But in the marketplace they appear to behave no differently from other
firms. Accordingly, our present policy would appear to lose none of its effectiveness
if directed toward preventing and dismantling intolerable market power without
special regard to the product diversity of its corporate residence.12
Essentially similar is the conclusion of Oliver Williamson:
One concludes that while antitrust vigilance with respect to reciprocity and
cross-subsidization is warranted, conglomerate acquisitions ought not to be
regarded with special animus on either account . . Public policy will be
served by identifying specific instances where conglomerates pose problems rather
than mounting a broadscale attack. Specific abuses (for example, reciprocity)
ought to be challenged but conglomerate acquisitions ought not to be arrested
on this account. Similarly, potential competition cases ought to be brought only
where nontrivial entry barriers exist and the acquiring firm can be characterized
as a most likely potential entrant.3
o Adams, William James. Market Structure and Corporate Power: The Horizontal Dominance Hypotheses
Reconsidered. Columbia Law Review, v. 74, November 1974: 1280.
10 Ibid., p. 1292.
11 Ibid., p. 1281.
12 Markham Jesse W. Conglomerate Enterprise and Public Policy. Boston, Harvard University Graduate
School of Business Administration, 1973, p. 175-176, 177.
Is Willliamson, op. cit., p. 165, 170.


But the concern voiced by Walter Adams and others about conglom-
erate enterprises in general and conglomerate mergers in particular
has been accentuated in recent years by the growth of large multina-
tional corporations which have achieved size and economic strength of
such magnitude as to present a challenge to national sovereignty. By
their ability to shift assets, personnel, and operations from one coun-
try to another, multinational enterprises have become more difficult
to monitor and regulate than businesses without extensive international
undertakings. Most of the multinationals probably meet the test of
being a conglomerate, not only by operating in separate national mar-
kets, but by being engaged in different product markets as well.
(See p. 29-30 below.)
The wave of conglomerate mergers of the 1960's has receded for
several reasons. Their advantages were oversold in the era of spec-
ulative euphoria. Expected economies of scale in obtaining capital
and in management control often failed to materialize. Inexperience
in new fields of enterprise took its toll. The stock market decline
in 1969 discouraged expansion of business ventures. The Tax Reform
Act of 1969 also eliminated some of the tax incentive for mergers.
Nonetheless, many issues involving conglomerate corporations and
their economic power remain. What proper policy should be continues
to be in dispute. One school of thought argues that the Celler-Ke-
fauver Act contains sufficient authority to cope effectively with anti-
competitive conglomerate mergers. Others contend that new and
stronger legislation is needed. The resolution of these opposing views
may well depend on whether the Supreme Court decides that the
Celler-Kefauver Act is in fact sufficient to strike down significant
conglomerate mergers, where horizontal and/or vertical merger ele-
ments are either absent or too insignificant to form the rationale for a
court decision for or against the conglomerate merger.
Since the major conglomerate businesses that raise concern for
antitrust prosecutors and other students of corporate power are those
of large aggregate size, and in many cases multinational in operations,
the issue arises whether the main source of this concern is the size
of the company, its conglomerate corporate structure, or where ap-
plicable, its multinational operations.
Bigness in business understandably evokes ambivalent reactions.
As has been reiterated repeatedly, in the law size per se is not a
violation of antitrust law. Where increasing size brings about econ-
omies of scale, such increases have merit. However, there are an-
ticompetitive practices which businesses are able to put into effect by
virtue of size, that would seem to make them appropriate targets
for antitrust action. Thus, frequently associated with bigness are such
practices as coercion and intimidation, preclusive purchases and
ownership of facilities and resources, and exclusive dealing and tying
As Walter Adams noted,14 a firm substantially larger than its rivals
can out-spend, out-dare, and out-lose them. Further since a large
14 See p.25 above.


business usually carries out a broader range of business functions
than a small one, it is in a better position to take steps that can have a
disastrous effect on a small single-line business, without any adverse
results on many parts of its own. As Corwin D. Edwards has recently
If we disregard such protection as may be provided by the antitrust laws, a
big enterprise has power to injure, cripple, or destroy one substantially smaller
without fear of significant retaliation; and it can derive from this power, without
needing to exert it, power to intimidate and coerce such competitors. 15
Corwin Edwards goes on to note that while antitrust laws have sig-
nificantly reduced the ability of large firms to apply such pressure,
there are still many forms of pressure which are hard to distinguish
from ordinary competitive behavior. Further, available legal proce-
dures are often slow and uncertain. As a result, Edwards concludes:
Unwilling to take the risks involved, small firms are likely to avoid decisions
that are conspicuously independent if these might make the large competitor
regard them as nuisances. Thus, the behavior of the small is warped toward con-
formity to the conduct of the large and toward acceptance of leadership by the
Whatever the source of the docility, differential size tends, through fear of
coercion, to reduce the initiative and independence of small competitors and the
vigor of competition.16
In view of the prevailing legal view that corporate size per se pro-
vides no basis for antitrust prosecution, it is understandable that the
focus of remedial action has been on conglomerates, even if there
is evidence that size itself may prove to be a major reason for a
company's dominance and monopoly power.
As the above discussion illustrates, it proves difficult to determine
whether particular anticompetitive practices are a result of a firm's
size, of the conglomerate nature of its operation, or because of the
combination of size and diversification. This dilemma is naturally
enhanced in practice by the fact that most of the largest concerns
that might be in a position to throttle competition are also con-
glomerate in the range of their operations.
This dilemma is well illustrated by a consideration of recent pro-
posals designed to restrict conglomerate mergers. The White House
Task Force on Antitrust Policy (sometimes called the Neal Committee
after its chairman, Phil C. Neal) recommended in 1968 that large
firms be prohibited from acquiring leading firms in major concentrated
industries. "
The Campbell-Shepherd proposal 18 in 1968 would consider leading-
firm conglomerate mergers presumptively unlawful under Section 7
of the Clayton Act. Such mergers would be those in which the ac-
quiring and the acquired flm are each any of the three to six largest
firms in at least one concentrated industry (one in which four-firm
concentration is above 40 percent) which is large enough to be sig-
nificant (an industry with assets of over $100 million).
Is Edwards, Corwin D. Economic Concepts and Antitrust Litigation: Evolving Complexities. Antitrust
Bulletin, v. 19, Summer 1974: 314.
Is Ibid., p. 314-316.
17 U.S. White House Task Force on Antitrust Policy. Report, May 21, 1969, 28 p. Further consideration,
of the Neal Committee report is to be found on pp. 38-39.
18 Campbell, James S. and William G. Shepherd. Leading-firm Conglomerate Mergers. Antitrust Bulletin
v. 13, Winter 1968: 1361-1382.


The Department of Justice guidelines of 1968 would subject to
challenge conglomerate mergers that reduce potential competition or
breed reciprocity. Firms would be permitted to gain a toehold in
another industry but would not be permitted to achieve a dominant
position in that industry.9
In each of these proposals purportedly intended to control conglom-
erate mergers, it is the factor of size combined with a substantial
degree of monopoly or oligopoly power which is a dominant
Multinational corporations have been referred to above (p. 27) as a
special case of conglomerate companies. But they have enough special
characteristics and have become such prominent elements in the
nation's economy as to warrant attention in their own right.
Although by no means a new phenomenon-they go back at least
to the East India Company in the 16th century"-multinational
corporations have become an increasingly significant part of the
American economy in the past half century, especially since World
War II. Their international operations can give them elements of
economic power that are not available to their purely domestic rivals.
They are more readily able to shift resources and skills to take ad-
vantage of changes in product costs and market opportunities on a
worldwide scale. They can often derive appreciable income from
currency transactions in times of monetary upheaval. Their competi-
tive advantage has often been enhanced by Federal assistance of
various kinds, such as research and development subsidies and tax
concessions. Spokesmen for these companies have argued, often
persuasively, that such concessions are in the national interest through
their enhancement of American trade and influence around the globe.
On the other hand, it must be recognized that multinational corpora-
tions face risks of expropriation and foreign government regulation
and restriction (including their antitrust laws). Also American overseas
operations are still subject to U.S. antitrust laws where they affect
U.S. commerce in prohibited ways.
Thus a dilemma exists as to how antitrust policy ought to be modi-
fied as it applies to multinational companies. Whatever restrictions
might be placed on their operations to limit their competitive ad-
vantage over domestic rivals need to be weighed against adverse
effects that such restrictions might have on the ability of these same
multinational firms to compete abroad against foreign enterprises.
At present, legislative curbs upon multinational corporations ap-
pear to be directed primarily toward greater disclosure. For example,
following extensive hearings by a subcommittee of the Senate Foreign
Relations Committee, Senator Church introduced S. 3151, 94th
Congress, the Multinational Business Enterprise Information Act of
1976. This bill would require on a country-by-country basis informa-
tion on all foreign affiliates and branches of American firms relating
to, among other items, their assets, income, commodities produced,
direct investments in them, financial transactions among them, taxes
paid, imports and exports, employment data and research and de-
w MitekA lohn. Address before Georgia Bar Associatlon, June6, 1969.


velopment expenditures. Data relating to products are to be reported
whenever possible on a product line basis. In addition, each reporting
firm would be required to provide the amount of expenditures in the
United States and in foreign countries directly or indirectly to any
agent or pursuant to any contractual arrangement.
If legislation along the lines of this bill were to be enacted, one would
have a reasonable chance to ascertain whether the market power of
multinational corporations is due in preponderant measure to opera-
tions of their foreign subsidiaries or affiliates and, if so, if that market
power were injurious to an appreciable degree to competition from
domestic firms.
The outlook for legislation beyond these disclosure requirements
is uncertain at best. This is due in part to legal and enforcement
difficulties in policing international operations of the multinational
firms, and in part to the role they play in American international
economic policy, a role which their spokesmen, of course, emphasize
with unabating fervor.
The influence on government of major corporations, although not
necessarily greater than that of other interest groups, is no doubt
substantial. However, it is difficult to measure. This influence is
more likely to be directed at specific targets for governmental action,
or in opposition to such action, than to take the form of broad at-
tempts to dominate government decision making. It is easy to recog-
nize that much of the influence which a large company will attempt to
bring to bear upon government will have important consequences for
competition. Large companies lobby for measures that will be rela-
tively more beneficial to them than to potential or actual competitors.
Tax, tariff, subsidy, and other legislative and regulatory proposals
get hammered out with major inputs by companies that wish to retain
or increase their relative competitive advantage. Nor is such an ex-
pression of views undesirable. On the contrary, attempts to limit such
views would be unconstitutional and futile as well.
The means by which corporations influence public policy is far from
adequately understood. While some studies such as "The Politics
of Oil" by Robert Engler and "American Business and Public Policy"
by Raymond Bauer, Ithiel de Sola Pool, and Lewis Dexter on the role
of corporations in affecting tariff policies in the 1950's, provide useful
insights, much more needs to be known. This is admittedly difficult,
given the penchant of businesses to shield the nature and extent of
their political activities. But it is essential if our insights into corporate
political power are to be accurate and meaningful.
In terms of regulation of corporate political activity, a distinction
is important between generally acceptable activity, such as open
testimony before Congressional committees, government service by
corporation employees with needed expertise, and much trade associ-
ation activity, and generally unacceptable activity, such as bribery,
undercover payments, and coercion of legislators and other govern-
ment officials.
While it may prove difficult to devise a model code of corporate
political conduct, disclosure of political activity would appear to be
an essential criterion.


One element of potentially significant monopoly power which has
received relatively little attention to date and which is not subject
to effective regulation is the control or influence exerted by a bank
or other financial institution over two or more firms competing in
a single industry. Banks, and to some extent other financial institu-
tions, can exert influence over a firm through voting shares of com-
mon stock over which they have direct or indirect authority, through
representation on the board of directors of the firm, and through ex-
tensions of lines of credit and other loans. Where more than one
of these channels of influence exist, they may be presumed to reinforce
one another.
Where, for example, a bank holds stock in two directly competing
firms, management of one firm might be deterred from making deci-
sions and implementing policies that would have an adverse effect on
the other firm. The extent of this kind of influence needs extensive
research and investigation. The rapid rise of institutional holdings,
including pension funds with large common stock portfolios, member-
ship by officials of banking and other financial institutions on the
boards of competing major industrial companies, and the continuing
massive capital requirements of giant corporations suggest that such
influence may be substantial. Such influence could be expected to be
exerted not infrequently in favor of policies that tend to thwart rather
than to encourage competition.
One proposal to deal partially with this problem, made by Dr.
John Blair, is to prohibit any financial institution (or its nominees)
from voting the stock (either directly, by proxy, or otherwise) which
it holds (for itself or for others) in two or more competing firms.20
Another might be to place some further restrictions on the practice
of interlocking directorates. Under Section 8 of the Clayton Act
direct interlocks between competitors above a given size are prohibited.
This does not, however, prevent an indirect interlock by which, for
example, a bank may be represented on the boards of two competing
airlines, and thereby have the opportunity to influence policy in the
direction of curbing that competition. It may therefore be advisable
to consider legislation which would place certain limits on this kind of
interlocking director relationship.
2 Blair, John M. Economic Concentration: Structure, Behavior and Public Policy. New York, Harcourt
lBrae Jovanovieh, 1972, p. 575.


Before turning more systematically to some of the alternatives that
have been proposed for dealing more effectively with inequities result-
ing from monopoly, oligopoly, and excessive market power, it is im-
portant to be aware that much of the variation in focus and in em-
phasis depends upon evaluation and interpretation of existing
information, information that is almost universally recognized as
deficient in many ways.
Of course for policy makers it is a commonplace to bemoan the lack
of or the inadequacy of data on which to base decisions and to out-
line courses of action. This is transparently the case in antitrust law
and policy. Not only are significant data often lacking or inadequate;
there is also substantial controversy as to the significance of such
findings as are agreed upon.
Disagreement as to whether or not market concentration has in-
creased during the past eighty years, or during segments of that
period, has already been mentioned above (pp. 17 and 20). Such dis-
agreement has in fact spawned a considerable literature.' At the core
of this disagreement are problems of measuring market concentration
and evaluation of what the significance of such market concentration
is for competition and for productivity.
Accurate measurement of market concentration requires concep-
tually meaningful data for industries, markets and firms. It is dif-
ficult to reach agreement on an acceptable definition of an industry
or market in a dynamic world of multiproduct firms, whose product
mix is in a frequent state of flux, with scattered geographical opera-
tions and locations of actual and potential customers.
Census industries often do not correspond to economically mean-
ingful markets (especially regional and local markets). Further,
comparison of firms within an industry is difficult because they
typically do not structure their internal operations and financial
reporting in the same manner or in any manner consistent with
providing clear answers to relevant questions of market power.
Concentration measures are thus relatively crude. Improvement will
require better, more consistent, and more meaningful reporting of
financial and operating data by firms. But even significantly improved
data on which to determine market concentration will leave a host of
questions for policy makers.
I See, for example:
Adelman, Morris. The Measurement of Industrial Concentration. Review of Economics and Statistics,
v. 33, November 1951: 296-196.
Berle, Adolf and Gardiner Means. The Modern Corporation and Private Property. New York, Macmillan,
Nelson, R. L. Concentration in Manufacturing Industries in the United States. New Haven, Yale Uni-
versity Press, 1963.
Shepherd, W. G. Trends of Concentration in American Manufacturing Industries. Review of Economics
and Statistics, v. 46, May 1964: 200-212.
U.S. Congress. Senate. Committee on the Judiciary. Subcommittee on Antitrust and Monopoly. Eco-
nomic Concentration. Hearings..., parts 1-7. Washington, U.S. Govt. Print. Off., 1964-8.


The determinants of market power, such as economies of scale,
of capital raising, and of procurement, need to be better understood.
We lack good time series data showing the degree of correlation be-
tween market concentration and industry profitability, even if much
evidence suggests the correlation to be positive. We understand very
imperfectly the mechanism by which market concentration affects
firm behavior. To what extent do large corporations participate in
arrangements that limit their freedom of action or the freedom of
action of those they deal with? To what extent do smaller or weaker
firms, or potential rivals, in an oligopolistic industry find their free-
dom of decision making impaired by the presence of one or more dom-
inant firms in the industry? What is the relationship between con-
centration and barriers to entry? Where entry is easy, concentration
measures may have little relationship to market power. Does com-
petition result in higher or lower costs per unit of output? How does
this vary by industry?
Do highly concentrated industries contribute more or less than
more competitive industries to inflation? 2
There are serious gaps in cost, price, and profit data by product
lines; such information is needed to determine how closely multi-
product firms follow or diverge from competitive market behavior.
We have little information as to whether or not firms in concentrated
industries are able to exert greater political leverage than those in
more competitive industries. We need a better understanding of the
corporate decision making process and how it affects the power of
large firms in concentrated industries. We need to know the extent of
influence of financial institutions on market behavior, as exerted
through credit policies, interlocking directorates, and right to vote
common stock.
A familiar defense of firms with a high degree of market power is
that such power is essential to achieve economies of scale, to raise
capital efficiently, to provide technological leadership, and to com-
pete on world markets. But counter-arguments are also presented.
Some argue, for example, that monopoly breeds inefficiency, leads to
disregard of costs, and lethargy in adopting technological improve-
ments. There is in fact a dearth of information on which to assess the
validity of these rival claims.
We have little accurate information on economies of scale, how they
are related to size of market and to the technology of an industry,
how they may differ between a new industry and a technologically
mature industry.
We lack a clear knowledge as to the correlation between market
power of a firm and its contribution to technological and scientific
progress. That the largest firms are not always the leaders in tech-
nology has been demonstrated to be the case in several industries.
Even if a certain degree of oligopoly power is demonstrated to be
essential for optimum efficiency, it still needs to be discovered what
the level would be. And, if in a given industry the pace of innovation
and technological change continues to rise after moderate levels of
concentration are reached, it needs to be determined whether the
2 See: Blake, Harlan M. Legislative Proposals for Industrial Deconcentration. In: Industrial Concentra-
tion: The New Larning, p. 351-354.


benefits associated therewith are sufficient to offset the adverse mo-
nopoly effect of high concentration. In more general terms, how does
one find the balance between, on the one hand, possible benefits of
economies of scale and more rapid technological change and, on the
other, the harmful effects of collusive behavior in concentrated mar-
kets? The question can also be put somewhat differently: to what
extent is monopoly power derived from superior efficiency due to
economies of scale and to what extent does it stem from the ability of
monopolistic firms to collude successfully because of their "fewness"? 3
The difficulties in providing answers to these and related questions
help explain much of the uncertainty and controversy surrounding
the possible impact of antitrust laws and enforcement, as discussed
above in Chapter III.
Both in the antitrust field and in other areas, there has been little
attempt to make an assessment of the impact of governmental de-
cisions and policies. The effectiveness of actions taken by the courts
providing for divestiture, dissolution, and changes in business prac-
tices is essentially a terra incognita. We do not know which remedies
have been effective and which have not. Most remedies have received
little analytical evaluation, either by the courts or by scholars.
Finally, it is essential to be able to make more accurate assessments
as to the impact of governmental actions, beyond antitrust, on monop-
oly and competition. The present surge of activity in attempts to
restrict the authority of many of the independent regulatory agencies
reflects a growing conviction that to a substantial degree the policies
and practices of these agencies have served to shield the firms and
industries they regulate from competition and that they are thereby
promoting monopoly. The extent to which this occurs clearly varies
from agency to agency and is likely to shift over time. In fact the degree
to which a given agency is fostering monopoly is largely speculative.
As has already been noted (pp. 3-4) there are many other government
programs and practices that encourage monopoly and discourage
competitive enterprise. Here again there has been little attempt to
measure the full impact of these actions.
It might easily be inferred that this dearth of information and
relevant analysis needed for sound public policy might well justify a
complete paralysis in the antitrust field. But as a policy option this has
as many, if not more, risks than taking specific steps to reform anti-
trust or other measures to bolster competition, even if the full impact
of such actions is thus far unmeasurable. A policy of inaction remains
an invitation to those who benefit from monopolistic power to
strengthen their hold on the market and to make it more difficult for
a more truly competitive market to function. And in spite of defi-
ciencies, progress has been and continues to be made in data gathering
and analysis that provide a basis for developing realistic modifications
of existing antitrust law and administration.
It is to some of these policy alternatives that the next chapter is
I See: Edwards, Franklin R. Concentration, Monopoly, and Industrial Performance: One Man's Assess-
ment. In: Industrial Concentration: The New Learning, p. 428-430.

The previous chapters have outlined basic elements in Federal
government policy with respect to monopoly and anti-competitive
business practices and have indicated to some extent how successful
such policy has been, in what areas, and where deficiencies remain.
In the course of that discussion, there have been references to possible
remedies and other modifications in policy. In this chapter different
alternative means of coping with monopolistic and related practices
w be pointed out more systematically.
These approaches to monopoly and excessive market power may
be grouped into three general categories, which are not, of course,
mutually exclusive:
(1) Increasing the effectiveness of present antitrust law by
increasing resources devoted to antitrust, increasing administra-
tive efficiency, increasing penalties, and taking other essentially
procedural steps.
(2) Amending the substance of antitrust law so that it can
serve as a more effective tool for dealing with the problems
associated with monopoly and excessive market power.
(3) Taking steps to remove governmental barriers to competi-
tion and to provide direct incentives for a more competitive
market system.
One approach to enhancing the effectiveness of antitrust law is
based on the premise that existing antitrust law is fundamentally
adequate in terms of its substantive provisions, that what is needed
is improved procedures and more effective enforcement.
Typical of this approach is the Antitrust Improvements Act of 1976,
Public Law 94-435, approved September 30, 1976. The Act is probably
the most significant antitrust legislation passed in the 94th Congress
and is the end result of prolonged debate and extensive compromises
in both Houses of Congress.
The law contains three principal provisions:
(1) Expanding the authority of the Antitrust Division of the
Department of Justice to issue civil investigative demands on
both businesses and individuals in order to obtain evidence on
possible antitrust violations in advance of the filing of an antitrust
complaint. The Federal Trade Commission and most other
Federal regulatory agencies already possess this authority.
(2) Requiring that the Antitrust Division be given 30 days
advance notice of corporate mergers involving firms with assets
of over $100 million merging with other firms with assets or sales
of $10 million or more.


(3) Giving the Attorneys General of the fifty States the power
to bring triple damage suits, on behalf of all the residents of their
States who suffer damages flowing from violations of the Sherman
Act. This is the so-called parents patriae provision.
Increasing fines for antitrust violations is a perennial recommenda-
tion. As a matter of fact the Antitrust Procedures and Penalties Act
(Public Law 93-528, approved December 21, 1974) did increase the
maximum fine for antitrust violations from $50,000 to $1,000,000 for
corporations and to $100,000 for individuals, and raised the maximum
criminal penalty from one to three years in prison. (It also provided
for procedures to expedite antitrust cases of general public importance
and strengthened the powers of the Federal Trade Commission relating
to enforcement of subpoenas and temporary injunctions.)
Perhaps more important than raising the level of fines is to attempt
to provide that fines be better adjusted both to the degree of harm
done by the violation of law and by the firm's ability to pay. At
present it would seem that while fines are relatively high for some
offenses by small firms, they are low enough to be a minor deterrent
for very large firms. It may also be noted that if enforcement were
more thorough and therefore the probability of prosecution greater,
the fines could well be lower than they need to be where the likelihood
of conviction is less.
For decades it has been argued that appropriations for antitrust
enforcement are inadequate in view of the substantial resources which
major corporations are able to spend in defense against government
prosecution. The limited funds available to the Antitrust Division
and the Feder~al Trade Commission have been a factor in forcing the
government to be highly selective in deciding which prosecutions or
investigations to undertake, and have often led to a reluctance
to oppose companies where successful prosecution is in doubt because
of the preponderant legal resources which can be expected to be
brought to bear in their defense.
S. 1136, 94th Congress, introduced by Senator Hart and Senator
Scott on March 11, 1975, is typical of bills introduced in the Congress
to raise antitrust appropriations. It would more than double the
amounts available for antitrust enforcement activities for a period
of three years.
Large appropriations are not in themselves a guarantee that anti-
trust agencies will be effective, however. As mentioned above (pp.
18-20), politics and expertise of personnel can be major factors m
the impact that antitrust will have. The subordination of skills in
economics, finance, engineering, and accounting to legal talent in the
antitrust agencies has cost them in expertise to an extent that has
probably diminished their effectiveness against their adversaries in
court. If lawyers in these agencies were better supported by experts
in other fields, such as finance and economics, the choice of cases
and the nature of evidence to be presented could make antitrust a
more effective force in the economy. In the selection of cases, more
weight should probably be given to the economic benefits expected to
be derived, and less on the probabilities of winning. Reorganization,
better trained personnel, longer tenure, better planning, all could help
in cutting down on waste and inefficiency.


There are inescapably political factors that motivate the amount of
energy and the direction of antitrust efforts. While these can probably
never be completely eliminated, and perhaps should not be, efforts to
depoliticize antitrust enforcement merit consideration. How to deal
appropriately with pressures on government exercised by powerful
corporations remains a serious problem as recent events amply demon-
strate. As noted above, p. 30, attempts might well be made to devise
more specific codes of conduct which would define unacceptable
kinds of activity-such as intimidation of legislators and other gov-
ernment officials, undercover payments and other forms of bribery-
and acceptable forms of conduct, such as providing information and
expertise to assist legislators and administrators. It may be desirable
to reexamine existing legislation on the legality of corporate political
contributions to make it more readily enforceable and effective. The
recently reported briberies and influence payments by major corpo-
rations linked to foreign governments as well as to domestic political
parties make this a matter of immediate concern.

It is widely agreed that the antitrust law of the land has not exerted
an appreciable effect on the extent of concentration in the American
economy, that in fact during much of the period since 1890, concen-
tration has apparently been rising rather than falling. (Admittedly,
as noted above (pp. 17, 32-34), the data on concentration and their
significance are subject to continuing controversy and disagreement
among economists and others.) This lack of effectiveness prevails in
spite of the success the government has had since 1960 in blocking
many mergers which would have increased concentration. This success
is in perhaps ironic contrast to attempts to undo past mergers which
may be fully as harmful to competition as planned mergers which
would increase concentration. This contrast, as noted above (pp. 12-
13), is due at least in part to the reluctance of courts to tamper with
existing corporate entities where dissolution or divestiture are feared
to have adverse effects on efficiency and on the income of investors.
It may also be due to the fact that acceptable structural remedies
have been difficult to find. As Peter Asch has noted:
If existing physical structures are easy to duplicate (e.g. American Tobacco),
then market power rests on other things than size and there may be no point in
splitting up a firm. If, on the other hand, structures are hard to duplicate, firms
are likely to be hard to split up. In the latter instances the government often has
been unable to produce clearly workable remedies that would yield the desired
reduction in power without harming efficiency. When such difficulties are com-
bined with the typical reluctance of the courts to tamper with existing concerns,
the lack of meaningful structural remedies is understandable.1
The dichotomy between merger policy and policy apropos existing
firms with monopolistic power has led to several proposals that
would face up to the problem of market power head on. These pro-
posals are based on the premise that this differential treatment is
unjust and brings into question the credibility of antitrust law gen-
erally. They are also based on the belief that market structure in
1Asch, Peter. Economic Theory and the Antitrust Dilemma, p. 399.


itself can lead to undesirable effects on the economy. As Phil Neal
noted, such proposals are based on the theory "that markets with
concentration will tend to behave in certain ways because of their
structure, even though the undesirable behavior cannot be readily
identified or its consequences clearly measured." 2
Three of these proposals will be noted as being among the more
prominent or significant-the Kaysen-Turner draft statute, the Neal
Committee proposal, and Senator Phil Hart's Industrial Reorgani-
zation bill. A few other proposals will be referred to more briefly.
1. The Kaysen-Turner Draft Statute
In 1959 Carl Kaysen and Donald F. Turner in their monograph,
"Antitrust Policy, an Economic and Legal Analysis" included a
draft statute providing standards for reasonable market power and
means of achieving divestiture where market power was unrea-
sonable.3 They suggest as evidence of market power: (1) persistent
failure of prices to reflect substantial declines of demand or costs, or
to reflect substantial excess capacity; (2) persistence of profits that
are abnormally high, taking into account such factors as risks and
excess capacity; or (3) failure of new rivals to enter the market during
prolonged periods of abnormally high profits or of persistent or
recurring rationing.4 Such unreasonable market power "shall be
conclusively presumed where, for five years or more, one company
has accounted for 50 percent or more of annual sales in the market,
or four or fewer companies have accounted for 80 percent of sales." 5
This market power shall be deemed to be unreasonable unless based
upon such economies as are dependent upon size in relation to the
market, ownership of valid patents, or lower prices or superior products
attributable to the introduction of new processes or improvements
or to extraordinary efficiency of a firm in comparison with that of
other firms having a substantial share of the market.
The draft statute provides for an executive agency-the Industrial
Reorganization Commission-and a judicial agency-the Economic
Court-to prepare remedies for unreasonable market power. The usual
remedy would be structural reorganization of one or more firms, and
the creation of new independent companies.6
2. The Neal Committee Proposal
The 1968 report of the White House Task Force on Antitrust
Policy (commonly called the Neal Committee) called for proceedings
aimed at restructuring oligopolistic industries. Oligopolistic industries
are defined as industries with (a) more than $500 million in annual
sales in 4 of the last 5 years; (b) four-firm concentration of 70 percent
or more in 4 of the most recent 6 years; and (c) the same four firms
retaining leading market positions over the last five years.7 The goal
2 Neal, Phil Caldwell. On Implementing a Policy of Deconcentration. In: Industrial Concentration: The
New Learning, p. 379.
3 Kaysen, Carl and Donald F. Turner. Antitrust Policy: An Economic and Legal Analysis, p. 266-272.
4 Ibid., p. 266.
5 Ibid., p. 267.
6 Ibid., p. 268-269.
7 White House Task Force Report on Antitrust Policy. Report, July 5, 1968, released May 21, 1969, p. 13.


of restructuring, under court order, would be a maximum market
share of 12 percent for any firm and 50 percent for the top 4 firms.
Provisions for voluntary restructuring by firms involved and for
the justification of higher levels of concentration on the basis of
scale economies were included.
3. Senator Hart's Industrial Reorganization Bill
The most prominent of current proposals to attack excessive
market power is Senator Hart's bill, the Industrial Reorganization
Act, originally introduced in the 92nd Congress on July 24, 1972,
and most recently as S. 1959 in the 94th Congress on June 17, 1975.
(The discussion herein is based on the 1975 bill.) It is comprehensive,
not only in enlargig the legal basis on which monopoly may be
effectively countered, but also in the administrative and judicial
agencies which it would establish to implement the Act.
In terms of its focus, two provisions are especially significant: (1)
its broadened concept of monopoly; and (2) its specific targets of
seven major industries to be studied and investigated to determine the
extent of monopoly power they exercise and to formulate reorganiza-
tion plans to curtail such power.
In introducing the 1975 bill, Senator Hart stressed the non-punitive
character of his bill. As in the Kaysen-Turner and the Neal Commis-
sion proposal, restructuring of an industry is the primary means relied
upon to achieve the objective of making a monopolistic industry more
competitive. In Senator Hart's words: "The companies are not being
'punished' by the restructuring which might occur. No matter how
the monopoly power was acquired, under this bill, there are no criminal
penalties applied. The only result of the bill's enforcement would be
restructuring-no jail terms or $1 million fines. More importantly,
no treble damage liability attaches." 8
Title I of the Act provides two basic criteria for determining the
existence of monopoly power. It declares that there is a rebuttable
presumption that such power exists if (1) there has been no substantial
price competition among two or more corporations over a period of
three consecutive years out of the most recent five, or (2) if four
or fewer corporations account for 50 percent or more of sales in any
line of commerce in any section of the country in any year out of the
most recent three.
A corporation shall not be required to divest itself of monopoly
power if it can show that such power is due solely to the ownership
of valid patents, or that such a divestiture would result in a loss of
substantial economies.
The proviso for the study and investigation of seven major industries
is indicated in Title II of the Act establishing, for a period of 15 years,
an Industrial Reorganization Commission. These industries are (1)
chemicals and drugs, (2) electrical machinery and equipment, (3)
electronic computing and communication equipment, (4) energy,
(5) iron and steel, (6) motor vehicles, and (7) nonferrous metals. For
each of these seven industries the Commission is to determine (1) the
maximum feasible number of competitors at every level without the
8 Congressional Record (daily edition), June 17, 1975: S 10732.


loss of substantial economies; (2) the minimum feasible degree of
vertical integration without the loss of substantial economies; and
(3) the maximum feasible degree of ease of entry at each level. The
Commission is also directed to study the collective bargaining practices
within each of these industries and determine the effect of such prac-
tices on competition. It is to prosecute violations of monopolistic
practices, as determined by Title I of the Act, by filing complaints
and proposing orders of reorganization with an Industrial Reorganiza-
tion Court, established under Title III of the Act.
The Industrial Reorganization Court would have the responsibility
to issue orders of reorganization to accomplish the purposes of the
Act, i.e., to restore effective competition. Such orders may include
requirements that a corporation modify contracts, terminate agree-
ments with other corporations, modify its methods of distribution,
require the granting of licenses under patents owned by the corpora-
tion or of technical information, and divestiture of particular assets.
The last of these is the one alluded to most specifically as probably
essential to fulfill the purposes of the Act.
To provide firmer empirical evidence on which to base its findings,
the Commission would have the authority to obtain detailed financial
and operating data from companies it investigates, including profit
and loss and other cost and income data for any product or line of
commerce. 9
The stress on disclosure in the Hart bill is based on the two premises
that (1) the information required is essential to the Commission's
developing a plan of reorganization for each industry, and (2) that
public disclosure of what has heretofore been largely kept secret of
large corporate operations would itself abet competition and deter
A basic aspect of the bill is its premise that a finding of monopoly
power is not predicated on a finding of specific anticompetitive ac-
tions, such as collusion, combination, or conspiracy, but is on estab-
lishment of specific standards and exceptions for finding monopoly
power, applicable throughout the economy. The Act, for example,
declares that it is "unlawful for any corporation, or two or more
corporations, whether by agreement or not, to possess monopoly power
in any line of commerce in any section of the country." (Title I,
Sec. 101(a).) JItalics added.) By including the italicized phrase,
it is not necessary to prove "contract, combination, or conspiracy"
as required under section 1 of the Sherman Act.

4. Other Proposals
Related to these three proposals are others which would limit
mergers in concentrated industries. Thus, as noted above, on p. 28,
a 1968 article by James S. Campbell and William G. Shepherd would
consider mergers presumptively unlawful in which the acquiring and
9 It should be noted that the Federal Trade Commission has been engaged in an uphill struggle to re-
quire major manufacturing companies to disclose financial information on a product line basis. A March
1974 version of its reporting form, as approved conditionally by the General Accounting Office, was sent to
345 major companies in August 1974, requesting 1973 data. One third of the companies failed to comply. A
revised form was sent out a year later to obtain 1974 fiscal data. Suits have been filed both by companies to
force the FTC to stop its product line reporting program and by the FTC to enforce compliance. The out-
look for the program is uncertain at best.

the acquired firm are each any of the three to six largest firms in at
least one concentrated industry (one in which four-firm concentration
is above 40 percent) and which is an industry with assets of over $100
Similarly, William James Adams in 1974 made a sweeping sugges-
tion "to establish a rebuttable presumption against any of the leading
200 firms in the country either acquiring another corporation or
adopting one of the restrictive practices identified in the Clayton Act
(such as requirements contracts or exclusive dealing). In effect, such
a procedure would express the belief that once a firm reaches a certain
scale, the probability it will injure competition by means of integra-
tion or certain business practices is so great that the firm should carry
the burden of justifying its desired course of conduct." 11
Somewhat more comprehensive is an earlier proposal by Louis B.
Schwartz for a law prohibiting a corporation with assets in excess of
$250 million, or any corporation which ranks among the top eight
producers in an industry where the eight-firm concentration ratio is
70 percent or higher, from:
1. Acquiring the stock, assets, or property of another company;
2. Granting or receiving any discrimination in price, service, or
allowance, except where such discrimination can be demonstrated
to be justified by savings in cost;
3. Engaging in any tie-in arrangements or exclusive dealership;
4. Participating in any scheme of interlocking control over any
other corporation.
In addition, such firms shall be obligated to:
5. Perform the duties of a common carrier by serving all
customers on reasonable and nondiscriminatory terms;
6. License patents and know-how to other firms on a reason-
able royalty basis; and
7. Pursue pricing and output policies calculated to achieve
capacity production and full employment.2
The recent move within the Congress to break up the major petro-
leum companies is a reflection of broad public concern with existing
market power, going well beyond the curbs on mergers, which is the
essence of most of the proposals just mentioned. In this respect it
follows the thrust of the Hart Industrial Reorganization Bill. The
bill, S. 2387, 94th Congress, introduced by Senator Bayh (Indiana)
and others as the Petroleum Industry Competition Act of September
22, 1975, would require companies engaged in petroleum production,
marketing, refining, and transportation to divest themselves of all but
one phase of the business. It was favorably reported, by an 8-7 vote,
by the Senate Judiciary Committee on June 15, 1976. The forces in
opposition to, as well as in favor of, this divestiture bill, are so strong
as to make passage unlikely in the near future. The potential impact of
the bill on prices and production is difficult to assess. It seems likely
that its effect will be less than that of other factors affecting the
petroleum industry, notably the bargaining power and tactics of the
0 Ca pbell, James S. and William G. Shepherd. Leading-firm Conglomerate Mergers. Antitrust Bulletin,
v. 13, Winter 718: 61-1382.
11 Adams, William James. Market Structure and Corporation Power: The Horizontal Dominance Hy-
pothesis Reconsidered. Columbia Law Review, v. 74, November 1974: 1292.
12 Schwartz, Louis B. Monopoly, Monopolizing and Concentration of Market Power: A Proposal. In.
Phillips, A., ed. Perspectives on Antitrust Policy. Princeton, Princeton University Press, 1965, pp. 117-128


Organization of Petroleum Exporting Countries, and national eco-
nomic policies for encouraging production and limiting consumption
of petroleum in a period of probably increasingly tight supply.
Since most of the attention to proposals of this kind to limit market
concentration is currently focused on the Hart bill, this paper will
concentrate on some of the critical reaction it has evoked. Much of
the criticism applies to the other proposals as well.
The presence or absence of "substantial price competition" is, in
the view of many economists and lawyers, difficult to prove. A price
increase in the face of declining cost and lowered demand, and price
ridgidity in the face of fluctuating supply and demand are indicative
of lack of price competition, but are not necessarily conclusive. More
particularly, lack of price competition, which, if proved, would estab-
lish the existence of an undesirable condition, does not by itself prove
specifically which firm or firms are responsible for this condition.
The share-of-the-market criterion has the same difficulties inherent
in most merger cases before the courts today-the controversies
surrounding the definition of relevant markets, both product markets
and geographic markets. Some of the objection to the bill would be
met if the critical measure of four-firm concentration were raised to
70 percent, and minimum sizes for industry and oligopoly firms were
set.13 On the other hand, much litigation may be expected on per-
mitting as a defense against a divestiture that it would result in a loss
of substantial economies; this defense could be expected to be invoked
with regularity and persistence.
The choice of the seven industries specifically cited by the bill for
investigation and possible restructuring raises controversial issues.
The mere listing of these industries as targets may be considered dis-
criminatory. For an industry as broad as "energy", it is difficult
to believe that a reorganization plan could be devised that could be
equitable to all parties without seriously adverse effect on some firms
within the industry, their employees, investors, and customers.
The difficulties inherent in these attempts to establish workable
limits to excessive market power have led to some suggestions for
alternative approaches that are less drastic but which might be use-
ful in achieving at least partially the same goals. Rather than attempt-
ing to limit the size of firms, it may be possible to reduce the barriers
to market entry. Setting limits to advertising expenditures of estab-
lished firms, if such advertising is shown to be a significant barrier
to entry, has been suggested. There is a question, however, whether
such a limitation would represent a violation of the First Amendment
protection of freedom of speech. Another approach is to require
firms with large market power to make patents available for license
at reasonable terms to new competitors.
As noted on p. 31, there appears to be ample, and perhaps growing,
opportunity for financial institutions to exercise considerable control
over companies in such a way as to reduce competition. The poten-
tial through interlocking directorates, stock holdings, and loans
and lines of credit is substantial. Disclosure of the extent of these
relationships might do much to keep them in check. It has also
been proposed (see p. 31 above) that a financial institution or its nomi-
i3 Blake, Harlan M. Legislative Proposals for Industrial Decentralization. In: Industrial Concentration:
The New Learning, p. 359.


nees be prohibited from voting the stock (either directly, by proxy,
or otherwise) which it holds in two or more competing firms. Limita-
tions on representation on the boards of competing companies by
financial institutions might also be worth considering.
Some believe that Federal incorporation laws could be useful as
adjuncts to antitrust, if they incorporate such provisions as uniform
and more comprehensive disclosure requirements and explicit anti-
monopoly standards. Finally, reference has been made above (pp. 29-
30) to Senator Church's Multinational Business Enterprise Informa-
tion Act, introduced this year. While the Act would be limited to ac-
quiring of additional information, such information would be helpful
in determining whether operations of these international firms are in
violation of existing law or whether the law needs strengthening.

While the major part of this paper is concerned with the impact
of antitrust law and administration on competition and with proposals
for making antitrust policy more effective, the Federal Government
obviously can and does influence the extent and vigor of competition
in the economy in many other ways. In fact, many students believe
that antitrust laws are of less significance than other measures which
may be adopted to improve the environment for competition in this
As noted in chapter 2, (pp. 3-4), many laws and governmental
policies are protective of monopolistic practices and tend to inhibit
competition, by providing barriers to entry of new competitors and
by protecting prices from the full impact of unfettered competition.
They include Federal and State laws restricting entry into banking, the
savings and loan business and other industries by means of charter
requirements, and State laws and union rules restricting entry into
professions, trades and occupations through high fees and unneces-
sarily stringent qualification and performance standards. They also
include a host of subsidy programs for agriculture, shipbuilding,
transportation, and other industries and trades. Moreover, businesses
regulated by the independent regulatory commissions frequently are
exempted from the antitrust laws. In addition, exemptions from the
requirement for competitive bidding are provided on certain types of
government contracts. Thus, for example, under the Concessions Pol-
icy Act (Public Law 89-249, approved October 9, 1965), concession-
aires in national parks are permitted to operate as legal monopolies.
While a sweeping repeal of this kind of laws and regulations is
hardly to be expected, there is a strong case to be made for investi-
gating each of them and requiring a justification for their continuance
on a case-by-case basis. The practical difficulties in the way of repeal-
ing exemptions to the antitrust laws and other anti-competitive
government policies are of course formidable. Strong vested interests
have become attached to each of the exempted industries and trades.
There may, in fact, be sound economic justification for some of the
exemptions, such as in the case of certain natural monopolies, or social
justification in the case of the exemption of labor organizations.


Some steps, actual and proposed, are underway to modify this
support of anti-competitive practices. Repeal of fair trade laws has
been noted above (pp. 15-16) as have attempts to modify the
Robinson-Patman Act (p. 15). The administration is seeking to
modify the regulation of airlines by the Civil Aeronautics Board, to
permit a greater degree of price competition without government
interference. It has also submitted draft legislation, the Motor Carrier
Reform Act, to relax control of the Interstate Commerce Commission
over trucking and bus companies. Similar actions are being proposed
in regulation of natural gas. And the possibilities of permitting more
competition in other transportation modes are being given serious
study. In general it needs to be recognized that conditions of natural
monopoly that may have existed at one time may change drastically
with new technological and market developments. Consequently
protection by regulatory agencies, justified once, may now be quite
contrary to the public interest.
As noted above, regulatory commissions and other regulatory
agencies have usually been able to subordinate antitrust considerations
to other factors in their regulation of firms under their jurisdiction.14
Although they are to a considerable extent exempt from antitrust
law, such exemption is not complete. Thus the Department of Justice
is increasingly involved in screening mergers by regulated firms, such
as airlines, electric utilities, banks, and railroads. A more systematic
policy of intervening by the Justice Department could be a useful but
less drastic step than broad deregulation towards bringing about more
genuine competition among firms in regulated industries.
Some progress is also evident in the relaxation of restrictive prac-
tices of trades and occupations. Specifically the immunity of learned
professions from antitrust laws appears to be losing ground. Guilds of
practitioners of various trades, occupations and professions have for
centuries attempted, often successfully, to enforce regulations that
restrained competition and that thereby had the effect of raising
prices above their competitive levels. These practices include licensing
provisions, restricting entry into the business or profession, and
limiting or prohibiting advertising, often through so-called codes of
Impetus to removing such anti-competitive restrictions, specifically
the restrictions against advertising, was given by the Supreme Court
decision on June 16, 1975, in the case of Goldfarb v. Virginia State
Bar (95 S. Ct. 2004 [1975]), which held that a bar association cannot
as part of its code of ethics attempt to prescribe a minimum fee
schedule. As a result of the Supreme Court decision, the Justice
Department has obtained consent judgments under which public
accountants and architects have agreed to abandon their restrictions
on price competition. Similarly, on May 24, 1976, the Supreme Court
in Virginia State Board of Pharmacy v. Virginia Citizens Consumer
Council, Inc., found that the Board's ban on advertising of prescription
drug prices was unconstitutional.
Medical practitioners still resist. In September 1975 the Depart-
ment of Justice filed suit against the American Society of Anesthesi-
ologists charging it with raising and fixing fees by distributing fee
14 See pp. 11-12; however, S. 2028, 94th Congress, The Competition Improvement Act of 1976, reported by
the Senate Judiciary Committee on July 21, 1976, would require regulatory agencies to apply a rigorous
antitrust standard in formulating policies and practices that affect competition.


guidelines to all its members. The suit is still pending. Also at the
beginning of 1976 the Federal Trade Commission filed an antitrust
complaint against the American Medical Association's ban on doctor
advertising. How far these moves will go cannot yet be foreseen. But
they do provide a wedge into the protective cover against competition
which governments, especially State and local, have granted to
practitioners of certain fields through licensing and condoning other
restrictive business practices.
Government policy on inventions and research might well be revised
in the interest of greater competition. The following proposals might
be considered: (1) establishing a clearing house to make inventors,
entrepreneurs and investors more aware of opportunities for exploita-
tion of inventions and new technologies; (2) provision for compulsory
licensing of patents by firms exercising a significant degree of market
power; (3) a government research policy which would provide more
benefits to new and small businesses. Related would be modification
of procurement laws and regulations that would encourage greater
participation by smaller firms. Tax laws could be amended to attract
capital to small, innovative companies, and to provide less incentive
for merger. The elimination of import quotas and lowering of protec-
tive tariffs would, most economists agree, have a beneficial impact on
Even government ownership has been, and can be, used to enhance
competition. The Tennessee Valley Authority, for example, stands as
the classic case of a government business established in part at least
to serve as a competitive yardstick to private operators.
Government rescue operations, such as those of the Reconstruction
Finance Corporation in the depression of the 1930's, may be seen as
helping preserve competition at a time when many businesses in the
nation were threatened with severe losses and bankruptcy. Technical
and strategic factors account for some government enterprises, such
as the uranium enrichment plants. Once elements of high economic
risk and security factors are successfully resolved, the pressure for
private participation by firms willing and able to participate in the
field is likely to be great enough to make such participation likely.
In fact, private firms operating these uranium enrichment plants and
others are potential bidders to own them as well.
One proposal, by Dean Neil Jacoby, that may merit some con-
sideration is the establishment of an Office of Competition within the
Executive Office of the President or an independent Competition Com-
mission.6 Such an agency would be charged with analyzing the effects
of all public and private actions upon competition, and would recom-
mend to the President and the Congress actions needed for effective
competition. It would also be expected to make studies of existing
laws, regulations and practices that impair competition and to recom-
mend removal of those judged not to produce offsetting social benefits.
Establishment of such an agency would in effect institutionalize the
goal of effective competition, Jacoby believes.
15 See: Jacoby, Neil H. Antitrust or Pro-competition? California Management Review, v. 16, Summer
1974: 57-58.


Most of the recommendations in the previous chapter are designed
either to strengthen the antitrust laws and their enforcement, or to
strengthen competition directly. These programs need not be mutually
exclusive. As Walter Adams said in 1974:
Public policy must come to grips with private action to restrain trade and to
entrench power as well as with governmental policies of restrictionism, pro-
tectionism, and subsidization. It is not an either/or choice. If the ultimate objec-
tive is free markets and a decentralized economic power structure, we have no
alternative but to attack on both fronts.'
In terms of strengthening antitrust by means of attacking directly
highly concentrated market power by means of proposals like the Hart
Industrial Reorganization bill, certain results could be anticipated as
likely to occur. Were such a bill passed, it could be expected to increase
competition, but perhaps at the cost of some reduction in efficiency.
Neither the magnitude of gains to competition nor the potential costs
in efficiency can be reliably predicted, given present knowledge. But
the consensus of expert opinion appears to be that, when measured
against total productivity of the economy, both the potential gains
and the potential losses are likely to be modest.
The same uncertainties will prevail in terms of attempts to get rid
of statutes, regulations, and other government policies that protect
monopolistic structures and practices that diminish competition.
The impact of proposals to deregulate some of the activities cur-
rently under regulation by the various independent regulatory com-
missions is difficult to assess, and is likely to differ substantially among
various industries and trades.
A greater consistency in the policies for dealing with monopolistic
and anticompetitive behavior would seem essential. A strict policy
against anticompetitive mergers coinciding with a de facto policy of
condoning existing firms with excessive economic power is disruptive
of public confidence in both the fairness and effectiveness of antitrust
policy. Rectifying that discrepancy, even partially, could contribute
to restoration of such confidence.
In the final analysis more than economic calculations weigh in the
balance. A major element in antitrust policy will always have to be
judgment as to what will contribute realistically toward the kind of
political and social order we aspire to.
More than sixty years ago, Allyn Young wrote:
The case for monopoly is exceedingly dubious and, at best, has a validity that
is restricted and conditioned in many ways. Moreover, such considerations are
relatively unimportant compared with matters like the effect of monopoly upon
distribution, upon the scope for individual initiative, upon economic opportunity
in general, and upon a host of social and political relations. In short, it is a ques-
tion less of the relative 'economy' of monopoly or competition than of the kind of
1 Adams, Walter. Corporate Power and Economic Apologetics: A Public Policy Perspective. In: Indus-
trial Concentration: The New Learning, p. 373.


economic organization best calculated to give us the kind of society we want.
Until our general social ideas are radically changed, it will take more than economic
analysis to prove that it would be sound public policy to permit monopoly in that
part of the industrial field where competition is possible.2
In a not dissimilar vein, the famed advocate of free enterprise,
Henry Simon, wrote in 1934:
Even if the much-advertised economies of gigantic financial combinations were
real, sound policy would wisely sacrifice these economies to preservation of more
economic freedom and equality . Few of our gigantic corporations can be
defended on the ground that their present size is necessary to reasonably full
exploitation of production economies; their existence is to be explained in terms
of opportunities for promoter profits, personal ambitions of industrial and financial
"Napoleons", and advantages of monopoly power. We should look toward a
situation in which the size of ownership units in every industry is limited by the
minimum size of operating plant requisite to efficient, but highly specialized
production-and even more narrowly limited, if ever necessary to the maintenance
of freedom of enterprise.3
It is of course not enough to base a program of action on the phi-
losophy of wise men expressed decades ago. Drastic changes in the
past half century require a new look at the various facets of economic
power, the role of giant corporations in the nation and of multinational
corporations throughout the world, and the extent to which economic
power is exercised in the interest of, or in opposition to the interest
of society, and where the loci of such power are. Policy formulation
must be based upon a realistic assessment of these changes. But it
must as truly be recognized that it cannot be successfully undertaken
without full regard for the standards of conduct which the American
people have found basic to their sense of justice, standards which have
found expression in their laws and courts of law.

2 Young, Allyn A. The Sherman Act and the New Antitrust Legislation. Journal of Political Economy,
v. 23, March 1915: 214.
3 Simon, Henry C. A Positive Program for Laissez-Faire; Some Proposals for a Liberal Economic Policy.
(Public Policy Pamphlet No. 15). Chicago, University of Chicago Press, 1934, p. 13, 20-21.