Antitrust Law and Economics in a Nutshell (5th ed.)

Competition Policy and Antitrust

Article Snapshot

Author(s)

Stephen Calkins, Ernest Gellhorn and William E. Kovacic

Source

Nutshell Series, St. Paul: West Publishing, 2004

Summary

This book reviews and evaluates antitrust law from legal and economic perspectives.

Policy Relevance

Antitrust policy continues to evolve, and this process can be guided by economic theory.

Main Points

  • Antitrust laws aim to prevent monopolies and to protect competition in general.
     
  • Consumers benefit from markets that new firms can enter easily; competition between firms tends to result in more goods at lower prices.
     
  • A number of antitrust laws prohibit concentrations of market power and enable governments and private parties to take legal action against firms that may be violating these laws.
     
  • Markets and market power can be difficult to define, and though legal tests exist, clear identification of monopoly abuse is rare.
     
  • Cartel-type agreements to manipulate markets by fixing prices at a high level or by maintaining fixed market shares tend to be unstable, but are vigorously prosecuted.
     
  • However, application of antitrust law to markets dominated by two or more influential firms is uncommon and poorly-developed.
     
  • Mergers between competing firms may be prevented when significant market power is a likely result, but vertical mergers are rarely scrutinized. For example, Ford would probably not be permitted to purchase General Motors, but Ford might have no problem purchasing the manufacturers that supply it with fuel tanks.
     
  • Patents grant an effective, temporary monopoly over a novel product as well as related economic rights that would otherwise be prohibited. They are permitted as a reward for innovation.

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