[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

demeanor.” (A 1974 amendment made violations felonies.) Two important decisions
based on the Sherman Act led to the breakups of Standard Oil and American Tobacco
in 1911, each of which had dominated its respective industry.
The Sherman Act was supplemented by the Clayton Act in 1914, which forbade
any firm to acquire shares of a competing firm when that purchase would substantially
reduce competition. The act also outlawed interlocking directorates (in which the
same individuals serve as directors of several firms) among firms that were supposedly
in competition. These antimerger provisions were further strengthened in
1950 by the Celler-Kefauver Antimerger Act.
The government does not care about absolute size itself. In the 1960s, huge firms
called conglomerates were formed that brought together such disparate enterprises as
a steel company, an oil company, and a company making films. For example, United
Airlines for a few years owned Hertz rental cars and Westin Hotels (both sold in the
late 1980s). But while large, these conglomerates generally did not have a dominant
position in any one market, and thus the antitrust laws were not concerned with them.
The early antitrust laws were particularly concerned with horizontal mergers, and thus
with competition within a market. These are distinguished from vertical mergers, in
which a firm buys a supplier or a distributor, thereby amalgamating the various stages
in the production process within a firm. Thus, Ford made its own steel, and General
Motors bought out Fisher Body (the maker of GM’s car bodies), as well as many of the
specialized firms that produced batteries, spark plugs, and other components.
Under current court interpretations, market power per se is also not a primary
concern. To be convicted of an antitrust violation, the firm must be shown to have
acquired its market position by anticompetitive practices or to have used its market
power to engage in anticompetitive practices.
DEFINING MARKETS
We have seen that the extent to which a firm’s demand curve is downward sloping,
enabling it to raise its price without losing all its customers—its market power—is
related to the number of firms in the industry and the extent of product differentiation.
Both factors are important for purposes of antitrust enforcement, since the
government must first define “the market” before it can determine whether a firm
dominates its market.
Internet Connection
U.S. DEPARTMENT OF JUSTICE AND ANTITRUST LAWS
At www.usdoj.gov/atr/overview.html, the Department of Justice
explains the mission of its Antitrust Division and its role in
preventing monopolies from depriving consumers of the
benefits of competition.
ANTITRUST POLICIES ∂ 301