The Debate against and for the Promotion of Anti-Trust Laws - Research Paper Example

Do Anti-Trust Laws Hampering Business Competition, or Promote Competition: An Analysis of Recent High-ProfileCases The debate against, and for the promotion of anti-trust laws and their effect on the promotion or hampering of business competition has been a raging issue since the enactment of the laws. What are Anti-Trust Laws Anti-trust laws are variously referred to as competition laws and they are basically sets of rules and regulations that have been formed with the main intention of promoting what can be perceived as fair competition between various competitors in a market place. These laws are designed to apply to both individuals and businesses. The laws are aimed at preventing the commitment of actions by one competitor that might have the effect of harming other businesses or the consumers. Some of these negative actions include the formation of monopolies, certain mergers between companies or some illegal cooperation’s that happen to be formed between some competing companies (Shapiro 41). U.S. Antitrust Laws In the United States, the first antitrust laws essentially came into being with the Sherman Antitrust Act of 1890, this law was formed to apply to interstate transactions. The basis of this law was to effectively remove the set limits on competitive trade and make it illegal for companies to form a monopoly or attempting to monopolize a market. The Clayton Act of 1914 was key in the regulation against acquisitions or mergers that would potentially lead to the creation of a monopoly or decrease any opposing competition. The Robinson-Patman Act of 1936, was enacted to make it illegal for producers to practice price discrimination by selling products at lower prices to some businesses as compared to other businesses (American Bar Association 23). The U.S. Federal Trade Commission (FTC) is a regulatory body that was formed in 1914 and was charged with the responsibility of enforcing the country’s antitrust laws. As it often happens, many of the antitrust laws are not very specific and they are normally subject to be interpreted variously in terms about what is best for a given competitive marketplace. By reviewing mergers to determine if the mergers will potentially create monopolies or reduce competition, the FTC is seen to enforce the given standards and effectively interpret the law in each particular case. American Needle Inc. vs. National Football League In a case filed by the American Needle Inc, against the National Football League “(NFL)” and the Reebok International Ltd. The suit alleged that by entering into an exclusive licensing agreement with Reebok, the NFL had violated the Sherman Anti Trust Act (Supreme Court of the United States 2). American Needle argued that because the 32 teams that comprised the NFL happened to separately own their own trademarks and Logos, their collective agreement that happened to authorize NFL Properties the permission for them to award Reebok a license allowing them to exclusively produce headgear for the teams was in actual sense, basically a conspiracy aimed at effectively restricting other vendors’ from being able to obtain licenses allowing them to produce the teams’ intellectual property. This suit by the American Needle Inc. was dismissed by the district court after it happened to disagree with the arguments. The American Needle Inc then proceeded to file an appeal in the U.S. Courts of Appeals, but the court of Appeals only affirmed the earlier decision by the district court. The Court of Appeals held that the NFL teams were actually recognized as a single entity for the purposes of aligning themselves with antitrust laws and as a result of this; they could not be deemed as having conspired to restrict trade. It is in this respect that the court ruled the verdict that the NFL constituent teams were legally free to license any of their intellectual property on a mainly exclusive basis to any party. The Case for Antitrust Laws in the American Needle Inc. vs. National Football League Case The Case against the Formation of Monopolies It can be variously argued that the biggest argument that is frequently fronted in support of anti-trust laws is that the laws help prevent the formation of monopolies. The major arguments against the formation of monopolies include the argument that monopolies result in a general loss of efficiency in production, this can be argued to result in higher product prices, underutilization of resources and smaller output capacities. If the NFL Properties had been judged as having been actively involved in monopolistic practices, its action of awarding an exclusive license to Reebok Company can be deemed as causing the industry to experience a general lack of incentive for both technological and economic progress. Other companies would not be motivated to try and by modify the headgear’s design and make it better because such actions on their part would not result in obtaining of the contract (Quinn 4). Profit distribution in the event of the formation of a monopoly can be argued to effectively foster income inequality among the companies. In this case in point, if Reebok were to enter into a monopolistic contract with the NFL Properties, it would stand to make some huge profit margins in comparison to other companies that are not given the chance to compete with Reebok on equal footing. The Case for the Formation of Monopolies The main argument in support of the formation of monopolies is that competition is healthy and exists in all industries globally. It is a factor that can never be eliminated and if a company’s good governance and policies cause it to grow to levels where it can be able effectively monopolize an industry, it should be allowed to do so without any governmental interruptions. Some proponents of monopolies argue that customers are usually not hurt by monopolies. And the formation of a monopoly by the NFL and Reebok will not necessarily harm the consumers. A good case in point of the harmful effects of government intervention on a company is the Standard Oil case. The facts surrounding the Standard Oil Case of 1911 are often misunderstood. Standard Oil never in any way acted to the detriment of its consumers, contrary to this, the company’s tremendous efficiency can be argued to have been mainly responsible for bringing about its gaining of a large oil market share as well as its fast growth. It’s activities resulted in tremendous drops in overall oil consumer prices and it has been noted that the price fell from about 30 cents per gallon of kerosene in 1869 to about 9 cents per gallon in 1880, which further reduced to 7.4 cents in 1890 and finally to 5.9 cents in 1897. Standard Oil in no way practiced any monopolistic actions and the market was fully open to competitors. This argument can be further strengthened by the fact that fact that by 1911, Standard Oil had about 147 competitors and its oil market share had ostensibly fallen from a high of 85% in 1890 down to about 64% in 1911. In an injunction filed against Standard Oil, it is important to note that the courts never actually found Standard Oil guilty of either raising of restricting oil prices and output. The ruling made by the court was that the company was essentially a combination or contract that was restraining trade and it is a result of this that it was found to be outlawed by the Sherman Act; it is on the basis of this argument that the court ruled to dissolve the oil company. It is observed that despite the court ostensibly applying the rule of reason in coming up with this decision, it is found that the High Court was not able to present any particular findings of guilt with respect to the charges of both misconduct and monopolistic practices that had been brought against the company by the U.S. Government. All that the courts managed to do was just but conclude that some business practices such as the formation of mergers were a clear indication that the merging companies were intent on forming a monopoly and such practices can be deduced as being unreasonable. The court never gave the reason as to why such practices are unreasonable and as a result of this, this defining case in the history and application of antitrust law can be seen to at best have been at best been based on some clearly dubious reasoning. The formation of a monopoly by NFL Properties and Reebok will be seen as being beneficial as since in most instances; powerful and large oligopolistic firms are the ones that are mainly responsible for the development and financing of expensive new technologies. Consumers of the NFL Properties headgears will stand to benefit from the development of better headgears designs and innovations by Reebok. The large profits that are amassed by monopolies are essentially provided to an industry’s innovators to help them in ensuring the overall economic progress of an industry. This is clearly illustrated the fact that both the United States and several other countries have filed many legal actions against IBM but virtually all of them have failed to go through. This can mainly be attributed to the fact that IBM as a company has continually continued to grow as a company and expand technologically. Its technological expansion can be deemed as being its main source of monopolistic power but its monopoly has proven itself to be of utmost benefit to society. Antitrust Legislation Several antitrust legislation exist in the United States, which can effectively be seen as playing a prime role in the limitation of the growth of monopolies (Emerson 61). Examples of these legislations include the Sherman Act of 1890 which was the first legislation that effectively set the philosophy, The Wheeler-Lea Act of 1938, the Clayton Act of 1914 which in addition to creating the Federal Trade Commission, it also specified some of the prohibited activities which included activities such as interlocking directories, acquisition of stock, price discrimination and tying of contracts. In America today, it can be seen that the application of most antitrust legislation has been changing with time, and has been gradually been becoming more or less restrictive depending on the attitude of both the administration and the society. A good example of this is that during the 1960’s a proposed merger between Blatz and Pabst was effectively blocked since analysts showed that such a merger would result in the combined company obtaining control of over only about 4.5% of the total beer market. It can be seen that since that time, the attitude has been growing more lenient as evidenced by the general flow towards the formation of mergers in various sectors and industries such as media, airlines, computers and pharmaceuticals. It is thus possible for NFL Properties and Reebok to enter into a merger that will be generally accepted by the public as well as the government. Pro Monopoly Legislation Some of the key legislation that have been enacted in the US that can be seen to encourage the formation of monopolies include the protectionist tariffs and quotas law, the patent law of 1790 and the Webb-Pomerance Act. The Commerce Department of the United States has been actively and explicitly encouraging all firms in the country to try and act together in concentrated efforts aimed at trying to promote the sale of American Products abroad in foreign countries in a complete disregard of all the country’s enacted antitrust limitations. Other countries all over the world have also enacted similar policies to promote overseas investments by their local companies. Support for Perfect Competition United States v. Google Inc. and ITA Software, Inc. In line with the theory of perfect competition, the ruling by the court to limit the terms of the merger between Google and ITA can be argued to be variously beneficial to the market in general. In the event that the merger had been allowed to go on without any limitations, most of the companies that relied on ITA’s QPX system could eventually be shut out of the system or their usage of the system would be severely limited by Google in possible attempts by Google to stifle any competition they may face in the market, create a monopoly and unfairly control the entire market. This is especially so in light that it was shown that the entry barriers that have been set barring other companies that attempt to develop alternative P&S systems are very high. This is as evidenced by the two firms Everbread and Vayant that have been trying to create alternative systems to ITA’s QPX but their systems have yet to manage to garner a significant number of OTIs as customers for their systems. Efforts by Google at looking into the development of its very own P&S System as opposed to acquiring ITA were ruled out as being unviable. This is because the development of a QPX system would require numerous engineers as well as possibly take several years as a result of the complexity of the algorithms involved. Problems with Perfect Competition United States v. Google Inc and ITA Software, Inc The theory of perfect competition is arguably flawed as it mainly dwells on how to equitably allocate various resources given perfect information. This is as opposed to trying to better understand how the main competitive market process of adjustment and discovery is designed to work in its attempts at coordinating a market’s anticipated demand with its supply in a world that is often full of imperfect data, economic uncertainties, differentiated preferences, dynamic change and inconsistent information. In the case of the United States v. Google Inc. and ITA Software Inc, it can be seen that attempts by the government to ensure that all the players in the market are equitably allocated with resources that will enable them to equally and effectively compete against each other, are generally misaligned, as they generally tend to lean towards perfection competition theory policies. It is an unfortunate thing that most government antitrust legislation has been grounded in the tenets of perfect competition model that makes the presumption that any output levels that are found to be less than those expected by the theoretical “perfect competitive output” are deemed as being somehow “restricted”. It follows that since the basic structure of the perfect competition model is in itself flawed, the theory of perfect competitive output is also flawed as well. The uncertainty that is evident in the world’s markets is seen to often necessitate measures such as inter-firm coordination, product differentiation and advertising, it is arguably wrong to view these as being indicators that competition in that particular market is effectively being stifled. Such measures should essentially be viewed as indicating disequilibrium. A Possible alternative to the model that has been put across by (Armentano 34) is the use of the Hayekian view of market competition as a possible entrepreneurial process, crucial in adjustment as well as the discovery under the straining conditions of uncertainty (Posner 41). The main implication raised by this model is that there will exist no “a priori” that will aim to limit to what extent, or whether cooperation or rivalry are in any way appropriate in a given market. It will naturally follow that in the due course of the general market purpose, some of the firms will happen to make enormous gains in terms of overall market share, whereas some of the less fortunate ones will eventually suffer huge losses or even fail altogether. Both the two phenomena are arguably essentially necessary factors for the market place’s discovery process to take place. In-line with this theory, it is found that the unrestricted merger of Google and ITA Software should be deemed as being legally acceptable as the market will essentially be left to the free forces that normally regulate markets. The fears raised by Kayak.com, Microsoft Corp and Expedia Inc. among other Google Competitors under the FairSearch.org umbrella do not hold any water as monopolies are not necessarily permanent and any possible competition is not in any way stopped by the monopoly. A good example of this is the case of Carnegie Steel which was renamed to Bethlehem Steel. The steel company was started by Andrew Carnegie in the early 1870’s. Carnegie invested in steel and utilized only the very latest technologies in steel production such as the Siemens-Martin open hearth and the Bessemer blast furnace. He managed to build the largest steel manufacturing company in the United States to effectively create and control a monopoly in the United State’s steel market (Stickells 31). Over time, the monopoly formed by Carnegie eventually lost most of its competitiveness and was eventually declared as being bankrupt. Under the direction of the Attorney General of the United States, The United States of America challenges the decision by Google Inc and ITA software, Inc to merge citing creation of unfair competition. It is apparent that conflict between regulation and antitrust arises when regulations restricts competition (Classen 64). In most cases, organisations facing such challenges come out strongly to oppose such regulations, with the argument that such restrictions are not justified especially when their objectives tend to cover general interest of the consumers. In order to have a common ground, the only determinant of which rule prevails has always been based on an assessment of the relation between competing norms in a given legal system (Foer and Albert 34). According to the plaintiff (the United States), the merger between Google and ITA would create unfair completion especially to ITA competitors in the airfare pricing and shopping system. One thing that is apparent in this scenario is that both Google and ITA are giants in their area of specialization. For example, Google is the leading provider of general internet search and search advertising thin the United States. On the other hand, ITA commands its line of business. In this regard, it is evident that when these two organizations mergers, they will hamper operations of their competitors. A possible scenario is that since Google is largely used in the United States, it is highly likely that it will take that advantage to favor ITA in terms of search engine results. This has a disadvantage to ITA competitors, whose search engine results would not be prioritized as that of ITA. In another dimension, Google competitors would lose business if this merger takes place. This can be argued to be true because there is a presumption that ITA would focus and concentrate on its relationship with Google. In addition, plaintiff argues that the proposed merger will definitely give Google the means to use its ownership of QPX to foreclose its prospective flight search rivals by a way of degrading their access to QPX, or even denying them access to QPX altogether. With such deliberations, the plaintiff argues that the proposed merger is likely to result in reduced quality, variety, and innovation for consumers of comparative flight search services. In another dimension, the move by the government to regulate/oppose this merger could be termed as being reasonable because most of the customers use flight search services. Therefore, the merger between Google and ITA would lead loss of business by ITA competitors. This translates to locking out customers that use these other companies for airline service. Arguable, the only alternative method for such customers is the use of airline websites and reservation lines, which are not reasonable substitute for comparative flight search services. This is true because it would be cumbersome for customers to search from one airline websites to another s they compare prices (The United States District Court for the District of Columbia). In terms of geographic market, it is apparent that a comparative flight service is the United States. All other OTIs that allows consumers to compare domestic flight prices and schedules are designed for the U.S consumers. Although it can be argued that consumers would turn to other foreign websites, foreign versions cannot be termed as viable substitutes for most U.S consumers since they list flight prices in their local currencies, something that requires U.S based consumers to incur currency conversion fee. On the other hand, Google and ITA can argue that their merge is justified because their objective is to diversify their operations and improve customer service. In this regard, their argument can be based on the fact that customers require high quality services, which according to Google and ITA can be achieved through such a merge. This can be extended to mean that other competitors would improve their services in order to maintain their competitive advantage. After Google acquire ITA, it is highly likely that it will lessen competition in the market for comparative flight search services in the United States. After the acquisition, Google could have intentions of using QPX for its technology in its forthcoming comparative flight search services. This can be argued from the basis that Google is aware that QPX is a unique P&S system due to its superior features, which cannot be easily replicated. In light with this, after acquiring QPX, Google will be in a position to block competing OTIs access to QPX (The United States District Court for the District of Columbia). This will have the potential to weaken the ability of its rivals to compete. With these deliberations, the government alleges that the proposed transaction between Google and ITA would reduce completion in interstate trade, which is the violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. Works cited: Supreme Court of the United States. American Needle, Inc. V. National Football League Et Al. Web 19th Nov 2012 . Quinn, Kevin. The Economics of the National Football League: The State of the Art. New York, NY: Springer New York, 2011. Print. Shapiro, Ilya. Cato Supreme Court Review, 2009-2010. Washington, D.C.: Center for Constitutional Studies, Cato Institute, 2010. Print. American Bar Association. Annual review of ... antitrust law developments. Chicago, Ill.: Section of Antitrust Law, American Bar Association, 1993. Print. Foer, Albert and Albert, J. The international handbook on private enforcement of competition law. Cheltenham : Edward Elgar, 2010. Print. Classen, Ward. A practical guide to software licensing for licensees and licensors. Chicago: American Bar Association, Section of Business Law, 2008. Print. Stickells, Austin. Federal control of business. Antitrust laws. Rochester, N.Y., Lawyers Co- operative Pub. Co., 1972. Print. Posner, Richard. Antitrust law. Chicago, Ill. [u.a.]: Univ. of Chicago Press, 2001.Print. Emerson, Robert. Business law. Hauppauge (N.Y.): Barron's, 2004. Print. The United States District Court For the District of Columbia. United States of America v. Google Inc. and IT A Software, Inc. Web 19th Nov 2012 Read More