A. Joyce Furfero, Ph.D., J.D.

28 Jan 2002
rev'd 28 Apr 2009

  • The best things come in small packages.

  • The government that governs best governs least (small government).

  • Competition is good; monopoly is bad.


    Antitrust regulation is the set of laws and rules designed to control markets, market participants, and the behavior or market participants. (See Title 15 of the USCA.)


    The U.S. welcomes and encourages competition. From its beginnings, the U.S. economy has been organized on the basis of maximum opportunity for private competitive enterprise and the widest possible latitude for personal choice in making a living and spending one's income. Any narrowing of the horizons for individual initiative is alien to the nature of the American enterprise system.

    During the first 100 years of its existence, the U.S. enforced competition through its court systems. However, in the late 19th century, when it appeared that some domestic interests were about to monopolize certain markets, the federal government embarked on a series of legislative initiatives to curb monopolies and monopolization and to promote competition. Some states had already enacted legislation to control market structures and market behavior. While the federal laws are most prominent, foreigners should also be aware that the states also have their own antitrust laws. Some states' laws are more restrictive than the federal laws; other states' laws are less restrictive .


    To promote competition.


    Antitrust laws rest on two (2) premises:

    1. The English common law as it evolved through court decisions over a long time.

    2. The belief that competitive markets yield more desirable outcomes than monopolistic markets.


    Competition is successfully effected, if four (4) conditions are present:

    1. There are a large number of buyers and sellers, so that no one buyer or seller can affect the market price or the conditions or terms of the transaction.

    2. There is a homogeneous product (no labels; no brand names; no advertising or packaging costs).

    3. Market participants have perfect knowledge of the market place (no information, transportation, or advertising costs).

    4. Market participants and resources are perfectly mobile (no transportation, education, or training costs; no discrimination).


    1. Price advantage Buyers get the lowest possible price and sellers get the highest possible price.

    2. Output advantage Sellers produce a maximum output consistent with buyer's demand and the costs of production.

    3. Profit advantage A competitive seller earns no greater profit than its competitors, unless it takes more risk; that is, unless it spends more of its income to improve its technology (method of production).

    4. Efficiency advantage The seller is forced to economize and produce with the least-cost combination of resources and newest technology.

    5. Income distribution advantage Incomes are distributed more equitably.


    Monopoly is the antithesis of competition. A monopolist is the single seller of a product for which there are no close substitutes and the barriers to entry are complete.


    1. Price disadvantage The monopolist is able to raise price above the competitive price.

    2. Output disadvantage The monopolist is able to restrict output.

    3. Profit disadvantage The monopolist earns a greater profit than it would in a competitive market, without taking any additional risks.

    4. Efficiency disadvantages

      • The monopolist does not need to economize on its resource use.
      • The monopolist does not need produce with the least-cost combination of resources.
      • The monopolist does not need adopt the newest technology.
      • The monopolist operates with a lot of waste in its organization.

    5. Income distribution disadvantage Incomes are distributed more inequitably.

    Very few markets are perfectly competitive. However, even imperfectly competitive markets are preferable to monopolies. Antitrust laws are designed to curb monopolies and monopolistic practices and to promote competition.


    Competition can be measured in three (3) ways:

    1. Market structure number, size, size distribution, and concentration of market participants

    2. Market behavior price and non-price practices

    3. Market performance profitability and efficiency

    Market performance is to difficult to mandate, let alone monitor and enforce. No one can force a company to achieve a certain profit or efficiency level. Therefore, antitrust laws are designed to attack market structure and market behavior in the hopes of achieving competitive outcomes.


    The federal antitrust laws and rules regulate goods and services which move in interstate (among the states) commerce and include imports.

    1. They do not apply to the manufacture of articles or commerce within a state. Intrastate (within the state) commerce is subject to state anti-monopoly statutes.

    2. They do not apply to the manufacture of articles or commerce for export.


    Sherman Antitrust Act (1890) - 15 USCA §§ 1-7 - enacted to outlaw monopoly behavior and to break up existing monopolies

    The late 19th century was characterized by excessive concentration of business in the hands of a few.

    1. Section 1 regulates Market Behavior It prohibits "every contract, combination in the form of trust or otherwise, or conspiracy," "in restraint of trade or commerce" "among the several States, or with foreign nations." The following five (5) practices are violations per se:

      1. Price fixing - a collusive agreement between two or more competitors to fix, stabilize or in any way affect the price of a product. Price fixing generally results in a higher "monopoly" price.

      2. Output restriction a collusive agreement between two or more competitors to restrict the volume of production.

      3. Market-sharing and territorial arrangements a collusive agreement between two or more competitors to divide up a given product market or geographical territory so that each member has a monopoly on its share of the market.

      4. Boycotts and concerted refusals to deal a collusive agreement between two or more competitors to boycott or refuse to deal with any third party.

      5. Tie-in sales a coercive tactic, whereby the seller seeks to force or induce a buyer to purchase one or more less desirable products or services in order to purchase the desired product over which the seller has significant economic control.

      Sherman also outlaws other oppressive or predatory practices "in restraint of trade or commerce."

      The Wilson Tariff Act (1894) - 15 USCA §§ 8-11 - extended the Sherman Act to make restraint of import trade illegal.

      The Expediting Act (1903) - 15 USCA §§ 28 and 29 - exempted export trade associations, as long as any act or practice thereof is not in restraint of trade within the United States, and is not in restraint of the export trade of any domestic competitor of such association.

    2. Section 2 regulates Market Structure It prohibits "any person" from "monopolizing, or attempting to monopolize, or combining or conspiring" "with any other person or persons," to "monopolize any part of the trade or commerce" "among the several States, or with foreign nations."

      Section 2 is the broader provision, applying to individuals as well as to combining or conspiring groups of individuals. [Note: Corporations are individuals.] Monopolies, colluding oligopolies, cartels, trusts, pools, and conspiracies to monopolize are illegal per se.

      1. Extensions Other federal laws limit the ownership and control by persons, associations or corporations of acreage on coal leases, sodium leases or permits, phosphate leases, oil and gas leases.

      2. Exemptions Natural monopolies (subject to significant economies of scale), agricultural cooperatives, and insurance companies are exempt. Certain railroad agreements to fix rates are exempt. Electric, telephone, water, and gas utilities were formerly exempt. They were franchised as monopolies in exchange for rate regulation. These franchised monopolies are being eliminated because of tremendous advances in technology.

      The Sherman Act does not define "restraint of trade" or "monopolization." Their interpretation has been left to the courts when adjudicating specific cases.

    3. Judicial Procedures and Processes The several federal district courts of the United States are vested with jurisdiction to adjudicate a Sherman violation. The several United States attorneys, in their respective districts, under the direction of the U.S. Attorney General, are empowered to institute proceedings in equity to prevent and restrain such violations. A court adjudicating a Sherman Act may bring in any additional parties, as needed, for a prompt and judicial resolution of the matter.

    4. Civil and Criminal Remedies for a Sherman Act Violation

      1. Any person convicted of a Sherman Act violation shall be deemed guilty of a felony, and shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

      2. Damages against a violator may include the forfeiture of property in transit from one State to another, or to a foreign country, to be forfeited to the United States. Such goods may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law.

    Clayton Antitrust Act (1914) - 15 USCA §§ 12, 13, 14 to 19, 20, 21, 22-27, 44; 29 USCA §§ 52 and 53 (as amended) - enacted to prevent the growth of monopolies and to prohibit discriminatory practices, which, if left unchecked, would lead to monopoly.

    1. Sections 2 and 3 regulate Market Behavior One of the purposes of the Clayton Act was to prevent large manufacturers from driving out smaller competitors by means of selective, discriminatory price cuts. Consequently, the Clayton Act regulates behavior in two (2) ways:

      1. It prohibits sellers and lessors from "[discriminating] in price between different purchases" for the same quantity and quality of goods and services, except where a price differential reflects "only due allowance for differences in the cost of selling or transportation." Price discrimination is identified by considering the price-cost ratios for goods of the same class.

      2. It prohibits sellers and lessors from selling or leasing "on the condition, agreement, or understanding that the purchaser or lessee thereof shall not use or deal in the goods [and services] of a competitor or competitors of the seller or lessor."

        Clayton strengthens the Sherman Act prohibition on tying contracts and exclusive dealing arrangements. It prohibits the lease or sale of a particular product or service conditional on the lessee's or purchaser's use of associated products or services sold or leased by the same manufacturer and on the lessee's or purchaser's promise not to obtain these associated products or services from a competitor.

      The Export Trade Exemption Act (1918) - 15 USCA §§ 61-66 - exempted exports from Clayton Act violations

      While the Clayton Act curbed many price discrimination abuses, it failed to solve all of the problems. Large retailers and distributors could still exert leverage over small wholesalers and retailers in obtaining preferential prices and services. The large retailers and distributors often received "broker's commissions" in the form of price discounts on sales in which no broker was employed. Or, they received "allowances" for promotional and other services rendered by and received without charge from the manufacturers.

      The 1930s was characterized by excessive price competition.

      The Robinson-Patman Price Discrimination Act (1936) - 15 USCA §§ 13, 13a, 13b, 21a - aimed directly at curbing these discriminatory practices.

      The Robinson-Patman Act strengthens the Clayton Act in six (6) ways:

      1. It restates and broadens the language of the original Clayton Act.

      2. It provides that a seller charged with price discrimination may defend its actions on the grounds that they were made in good faith to meet an equally low price of a competitor or the services or facilities furnished by a competitor.

      3. It prohibits discriminatory brokerage commissions.

      4. It prohibits allowances for services rendered, "unless such payments or consideration is available on proportionally equal terms to all other customers."

      5. It prohibits sellers from performing services for customers, unless such services are available to all on "proportionally equal terms."

      6. It prohibits any person from knowingly inducing or receiving a discriminatory price.

      The Robinson-Patman Act mandates that any and all price concessions or other terms and conditions of sale, service, or lease, which are given to one person, must be made available to all purchasers and lessors on equal terms.

      These prohibitions and exceptions apply to buyer and sellers of commodities and services as well as to lessors and lessees of facilities and commodities.

    2. Sections 7 and 8 regulate Market Structure The other purpose of the Clayton Act was to prevent the growth of monopolies and to prevent corporations from combining in such a way so as substantially to lessen competition.

      1. Merger Activity A merger is an agreement between two companies whereby one company agrees to acquire control of the other company. Some mergers result in a lessening of competition; other mergers do not.

        1. Horizontal merger the combination of two companies in the same line of business at the same stage of production; for example, two automobile manufacturers. Horizontal mergers always decrease competition in a given market, because they reduce the number of sellers in the market.

        2. Vertical merger the combination of two companies in the same line of business, but at different stages of production; for example, an automobile manufacturer acquires the chemical manufacturer from which it buys paints and finishes for its automobiles. Vertical mergers may decrease competition, if the acquisition forecloses other potential market participants from dealing with either the automobile manufacturer or the chemical manufacturer after the acquisition.

        3. Conglomerate merger the combination of two companies in different lines of business, and/or at different stages of production; for example, an automobile manufacturer acquires a toy manufacturer; or a toy retailer. Conglomerate mergers may decrease competition, if

          1. the two companies can practice reciprocity within the combined company such that outsiders are foreclosed from doing business with either company after the merger.

          2. the combined company is sufficiently large to exert pressure on the banks and other businesses to prevent them from doing business with any competitors of the combined company.

          3. one of the combined companies has "deep pockets" with which to subsidize the costs of the other company so that the other company's products can be sold at deep discount to drive out its competitors.

          4. the combined company forecloses potential competition; that is, absent the combination, the acquiring company could have and would have entered the market as a new, additional competitor.

        Section 7 prohibits corporations from holding the stock of another company or of two competing companies "where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."

          Exception Permits the purchasing or another corporation's stock "solely for investment and not using the same by voting or otherwise [bringing] about, or in attempting to bring about, the substantial lessening of competition." [The 10% Rule.]

        The Cellar-Kefauver Act (1950) amended Section 7 to prohibit the acquisition of the whole or any part of the assets of another corporation when the effect of the acquisition may substantially lessen competition or tend to create a monopoly.

        The Act does not define "line of commerce," "section of the country," or "substantially to lessen competition." Their interpretation has been left to the courts when adjudicating specific cases.

        Periodically, the Antitrust Division of the Justice Department (a Cabinet department in the Executive Branch) publishes notices of its merger guidelines in the Federal Register. For recent merger guidelines, see Antitrust Guidelines for International Operations, 53 FR 21584-01, Wednesday, June 8, 1988; 1984 Merger Guidelines, 49 FR 26823-03, Friday, June 29, 1984; Merger Guidelines, 47 FR 28493-01, Wednesday, June 30, 1982.

        The Hart-Scott-Rodino Antitrust Improvements Act (1976) - 15 USCA §§ 15c-15h, 18a, 66 - added a provision for premerger notification of a pending acquisition and a 30-day waiting period (15-day waiting period for cash tender offers) for approval by the Federal Trade Commission and the Antitrust Division of the Department of Justice. It set minimum values for assets held by the merging parties to an acquisition and minimum security interests after an acquisition to require notification and waiting.

      2. Interlocking Directorates And Officers Section 8 prohibits corporate directors from sitting on the Boards of two competing companies, where "the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws," if each of the corporations has more than $10,000,000 in adjusted capital, surplus, and undivided profits.

        Exceptions A director or officer may simultaneously serve in two or more corporations, if

        1. the competitive sales of either corporation are less than $1,000,000, as adjusted pursuant to paragraph (5) of this subsection;

        2. the competitive sales of either corporation are less than 2 % of that corporation's total sales; or

        3. the competitive sales of each corporation are less than 4 % of that corporation's total sales.

        "Competitive sales" means the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation's last completed fiscal year.

        "Total sales" means the gross revenues for all products and services sold by one corporation over that corporation's last completed fiscal year.

        Note: For each fiscal year commencing after September 30, 1990, the $10,000,000 and $1,000,000 thresholds shall be increased (or decreased) as of October 1 each year by an amount equal to the percentage increase (or decrease) in the gross national product, as determined by the Department of Commerce or its successor, for the year then ended over the level so established for the year ending September 30, 1989. As soon as practicable, but not later than January 31 of each year, the Federal Trade Commission shall publish the adjusted amounts required by this paragraph.

    3. Liability of the Members of the board of Directors Whenever a corporation shall violate any of the penal provisions of the antitrust laws, such violation shall be deemed to be also that of the individual directors, officers, or agents of such corporation who shall have authorized, ordered, or done any of the acts constituting in whole or in part such violation, and such violation shall be deemed a misdemeanor, and upon conviction therefor of any such director, officer, or agent he shall be punished by a fine of not exceeding $5,000 or by imprisonment for not exceeding one year, or by both, in the discretion of the court.

    4. Relief by Aggrieved Party Against Violator

      1. Monetary Relief for Clayton Act Violations Any injured person, firm, corporation, or association and the several United States attorneys, in their respective districts, under the direction of the Attorney General, may sue and recover treble (three-fold) damages against any person convicted of an Clayton Act violation.

      2. Injunctive Relief against Clayton Act Violations Any person, firm, corporation, or association and the several United States attorneys, in their respective districts, under the direction of the Attorney General, may sue in equity to prevent and restrain Clayton Act violations. The several district courts of the United States are invested with jurisdiction to prevent and restrain violations of this Act.

        Injunctive relief is not granted willingly.

        1. The party requesting injunctive relief must show that it has no monetary remedy, that the danger of irreparable loss or damage is immediate, and that it has a meritorious cause of action against the alleged violator; and

        2. The alleged violating party must be given adequate notice and a fair opportunity to be heard.

    5. Statute of Limitations A statute of limitations is a statute of "repose." It permits an otherwise justifiable legal action to expire if not prosecuted within a limited time period. The statute of limitations for antitrust violations is four (4) years from the date of the last anticompetitive act.

    6. Collateral Estoppel Effect of a Prior Judgment Permits a judgment against a violator to serve as prima facie evidence in other similar proceedings brought against the violator by other persons.

      The International Antitrust Enforcement Assistance Act (1994) - 15 USCA §§ 6201-6212 - facilitates procurement of foreign-located antitrust evidence by authorizing the Attorney General of the United States and the Federal Trade Commission to provide, in accordance with antitrust mutual assistance agreements, antitrust evidence to foreign antitrust authorities on a reciprocal basis; and for other purposes.

    Federal Trade Commission Act (1914) - 15 USCA §§ 41-46, 47-58

    1. Section 5 regulates Market Behavior It prohibits "unfair methods of competition." In addition to the behavioral violations under the Sherman and Clayton Acts, the following practices have been prosecuted as Section 5 violations:

      1. Dumping The importation for sale of articles at less than market value or wholesale price

      2. Agreements involving restrictions in favor of imported goods or restricting output of domestic goods

      This section does not require the finding of a conspiracy. Therefore, it is used to attack and stop abusive trade practices before they develop.

      The Wheeler-Lea Act (1938) - 15 USCA § 41- amended the Federal Trade Commission Act by also prohibiting "unfair or deceptive acts or practices in commerce."

      1. Mislabeling labeling which contains or omits a material fact which would lead a reasonable person to believe that the product is or does something different than it actually is or does. Examples:

        1. Labeling knitwear as "natural merino," "gray wool," "natural wool," "natural worsted," or "Australian wool," when it is not composed wholly of wool, is misleading.

        2. Labeling used motor oil as "reprocessed oil" is misleading, if the buyer does not know the differences in characteristics between new and used motor oil.

        3. Labeling a cosmetic, "Rejuvenescence," falsely represents the product as capable of restoring the youthful appearance of the skin.

        4. Blending mixtures of various oil extracts from plants with alcohol, in the United States, and then putting the finished product in a bottle bearing a label in foreign language, which stated that the contents were made abroad, and warning against infringement, followed by English inscription "bottled in U.S.A.," is misleading.

      2. False advertising an advertisement or other promotion, other than labeling, which is misleading in a material respect, and which would lead a reasonable person to believe that the product is or does something different than it actually is or does.

        1. Advertising is false advertising not only when there is proof of actual deception but also when representations made have a capacity or tendency to deceive, that is, when there is a likelihood or fair probability that the reader will be misled.

        2. An advertisement is false if it fails to disclose sufficient facts to counter any false assumptions created by advertisement, including omissions of any negative material facts.

        3. Advertisements which are capable of two meanings, one of which is false, are "misleading" and in violation of 15 USCA § 55(a)(1).

        4. An advertisement stating that the company's (Kraft) processed cheese slices were made from five ounces of milk per slice which also implied that consumer got calcium found in five ounces of milk when in fact 30% of calcium in five ounces of milk is lost in processing was in violation of the Federal Trade Commission Act.

        5. Advertisement representing that bread sold under trademark "Lite Diet" was a low calorie food when in fact it contained same number of calories as other white bread but had thinner slices was misleading and false and constituted deceptive practices.

    2. Establishment of an Oversight Commission - The Federal Trade Commission

      1. Structure The Commission shall be composed of five Commissioners, appointed by the President, by and with the advice and consent of the Senate. Not more than three of the Commissions shall be members of the same political party. The President shall choose a chairman from the Commission's membership. No Commissioner shall engage in any other business, vocation, or employment. Any Commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. A vacancy in the Commission shall not impair the right of the remaining Commissioners to exercise all the powers of the Commission.

      2. Powers and Duties The Federal Trade Commission is empowered and directed to prevent persons, partnerships, or corporations from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce. The Commission may

        1. issue "cease and desist" orders to any person, partnership, or corporation to prevent it from using any unfair method of competition or act or practice.
        2. investigate and prosecute violators in federal court.

        3. gather and compile information concerning, and investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce.

    3. Fair Trade Laws At one time, US had "Fair Trade Laws which exempted certain resale price maintenance agreements from antitrust prosecution. A resale price maintenance agreement allows a manufacture to specify the minimum price at which a retailer may sell its product. This price is often called the "manufacturer's suggested retail price." These laws have were repealed in 1975. However, in 1981, the Justice Department indicated that it would not ordinarily prosecute "vertical price fixing" of the fair trade variety. Thus, in the absence of legislation to the contrary, resale price maintenance agreements or "vertical price fixing" agreements continue to affect some US markets.


    1. Agriculture, unfair practices in - 7 USCA § 499b
    2. Amplifiers utilized in home entertainment products, power output claims for - 16 CFR 432.1 et seq.
    3. Decorative wall paneling industry - 16 CFR 243.0 et seq.
    4. Endorsements and testimonials in advertising - 16 CFR 255.0 et seq.
    5. Extension ladders, deceptive advertising and labeling as to length of - 16 CFR 418.1 et seq.
    6. Film and film processing retail sales - 16 CFR 242.1 et seq.
    7. Food retailing and gasoline industries, games of chance in - 16 CFR 419.1 et seq.
    8. Franchising and business opportunity ventures, disclosure requirements and prohibitions concerning - 16 CFR 436.1 et seq.
    9. Fuel economy advertising for new automobiles - 16 CFR 259.1 et seq.
    10. Fur products, labeling of (15 USCA §§ 69-69j)
    11. Home insulation, labeling and advertising of - 16 CFR 460.1 et seq.
    12. Household furniture industry - 16 CFR 250.0 et seq.
    13. Labeling, advertising, and sale of wigs - 16 CFR 252.0 et seq.
    14. Law book industry - 16 CFR 256.0 et seq.
    15. Mail order merchandise - 16 CFR 435.1 et seq.
    16. Ophthalmic goods and services, advertising of - 16 CFR 456.1 et seq.
    17. Retail food store advertising and marketing practices - 16 CFR 424.1 et seq.
    18. Schools, private vocational and home study - 16 CFR 254.1 et seq.
    19. Sleeping bags, advertising and labeling as to size of - 16 CFR 400.1 et seq.
    20. Textile fiber products identification (15 USCA §§ 70-70k)
    21. Textile wearing apparel, care labeling of - 16 CFR 423.1 et seq.
    22. Wool products, labeling of (15 USCA §§ 68-68j)


    Antitrust Division of the Justice Department A cabinet department in the executive branch, which investigates and prosecutes antitrust violators.

    Federal Trade Commission A quasi-independent agency empowered to make antitrust rules, to enforce antitrust regulation, to investigate and prosecute antitrust violators.

    Other quasi-independent agencies in specific markets:

    1. Interstate Commerce Commission, where applicable to common [ground transport] carriers.

    2. Federal Communications Commission, where applicable to common carriers engaged in wire or radio communication or radio transmission of energy.

    3. Secretary of Transportation, where applicable to air carriers and foreign air carriers.

    4. Board of Governors of the Federal Reserve System, where applicable to banks, banking associations, and trust companies.


    Darwinian Evolution

    Monopoly is simply the end result of competition and survival of the fittest. It depends on which firms have been able to better adapt to their environments. More successful firms have been better able to adapt to their environments and they expand, eventually, becoming monopolies. Less succesful firms have been less able to adapt to their environments and they contract, eventually, going out of business. Unfortunately, this argument is circular to some extent because it presumes that the existence of a monopolist is due to better adaptation when the existence of a monopoly could be fortuitous, coerced, or government-mandated.

    Creative Destruction

    The criteria by which pure and perfect competition is held as the "ideal" market structure and monopoly as the villain are, for the most part, static. Price, marginal cost, and average cost are variables that are observed at a point in time. Allocative efficiency, productive efficiency, and x-efficiency are performance criteria that are observed at a point in time. Moreover, under perfect competition all firms in an industry produce the same good, sell it for the same price, and have access to the same technology. Profitability, income redistribution, and dynamic efficiency are dynamic measures that can be observed over time. However, the competitive model generates only normal returns with no innovation.

    In 1942, Joseph Schumpeter turned the tables on economic market theories. In Capitalism, Socialism and Democracy, Schumpeter argued that some degree of monopoly is preferable to perfect competition, because innovation and monopoly are inextricably linked. Schumpeter posited that monopoly profit is the reward for successful innovation and that individuals spend time and energy researching and developing new ideas to corner the market and gain monopoly profit. Without the prospect of economic profit, no innovation would ever occur. However, the more profitable the monopoly, the more subject to attack it will be by rivals wanting to enter the market to share the monopolist's profits. As new firms enter, they erode the profit of all firms. Eventually, when the market is saturated with many firms, the weakest will contract and leave. In the end, only one seller — a monopolist — will remain.

    Size alone does not guarantee that innovation will occur. The telecommunications and the pharmaceutical industries have been very innovative, but steel and automobiles have lagged foreign competitors of much smaller size. However, size coupled with profitability and potential competition generally spurs innovation.

    Coalition Capitalism

    Coalition capitalism is an economic regime between and among businesses, labor, and governments that encourages planning and cooperation rather than conflict and competition. It is literally a reverse antitrust concept. The National Industrial Recovery Act (NIRA) of 1933 was an attempt by Congress to form such a coalition to obtain relief from what was perceived as "destructive" competition. From 1929 to 1933, prices and wages fell. NIRA emphasized big business and big labor which would have monopolistic selling power to raise prices and wages. In Japan and South Korea, coalitions of businesses, banks, and governments ("keiretsus" in Japan) have been very successful. However, coalitions among businesses, labor and governments in steel and automobiles in the U.S. have been extremely inefficient.

    The Global Economy

    Prior to the 1980s, the United States was the primary producer of value-added manufactured products for the entire world. If an auto company was a monopoly in the U.S., it was a monopoly worldwide. U.S. antitrust laws that attacked domestic monopolies and monopoly behavior and prevented domestic companies from forming monopolies or engaging in exclusive or collusive activities or predatory practices attacked monopoly and monopoly behavior worldwide.

    In the 1980s, the U.S. economy shifted from being an isolated self-contained economy that exported its value-added products to the rest of the world to being a truly open economy with competitive imports from foreign countries. U.S. companies, no matter how big, had competition from companies in other countries. In the new global age, U.S. antitrust laws no longer had any relevance because of the voluminous competition from companies in, say, Japan and Germany.

    By the 1990s, the U.S. antitrust laws were even less relevant because the U.S. was importing products from even more countries, like India, the Asian Tigers, and, eventually, China. Does it matter if the U.S. has only one automobile manufacturer, if that company has competition from 20 other automobile makers around the world? Probably not. To try, then, to break the U.S. auto maker into several small companies is an exercise in economic futility. The resulting small companies might lack sufficient economies of scale to compete effectively against the foreign manufacturers.

    Other questions and issues that pre-empt antitrust laws:

  • Should we be producing switchblades with the least-cost combination of resources or should we be producing switch blades at all?

  • Should government be bailing out companies because they are too big to fail? privatize gains and socialize losses

  • How much laissez-faire is anarchy?