Antitrust Enforcement in the United States: Market Structure Versus Market Conduct

Washington University Law Review Volume 1974 | Issue 1 January 1974 Antitrust Enforcement in the United States: Market Structure Versus Market Conduct William H. Barrett Manley R. Irwin Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview Part of the Antitrust and Trade Regulation Commons, and the Law and Economics Commons Recommended Citation William H. Barrett and Manley R. Irwin, Antitrust Enforcement in the United States: Market Structure Versus Market Conduct, 1974 Wash. U. L. Q. 37 (1974). Available at: https://openscholarship.wustl.edu/law_lawreview/vol1974/iss1/7 This Article is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact . ANTITRUST ENFORCEMENT IN THE UNITED STATES: MARKET STRUCTURE VERSUS MARKET CONDUCT MANLEY R. IRWIN* WILLIAM H. BARRETT** I. INTRODUCTION A reassessment of antitrust policy in the United States may not ap- pear particularly relevant in an economy beset by stubborn inflation and a constitutional crisis. But the American economy is well into the 1970's and structural patterns are now emerging that merit the attention and consideration of public policy-makers. The economy is experiencing a gradual shift from the production of goods to the provision of services.' The top 200 corporations find their positions increasingly stabilized over time. 2 The multinational corporation has become an institutional given.3 Regulated utilities are diversifying into nonregulated activities.4 Horizontal and vertical mergers are once again the dominant form of corporate expansion, after being temporarily supplanted by the conglomerate binge of the 1960's.5 Amidst these * Professor of Economics, Whittemore School of Business and Economics, University of New Hampshire; currently on leave with the Federal Communications Com- mission trial staff. M.A., 1954, University of Michigan; Ph.D., 1963, Michigan State University. ** Staff Economist, Federal Communications Commission trial staff. A.B., 1972, University of New Hampshire. The opinions expressed herein in no way reflect the policies of the Federal Communications Commission. 1. See D. BELL, THE COMING OF POST-INDuSTRIAL SOCIETY 108 (1973). See gen- erally N. JACOBY, CORPORATE POWER AND SOCIAL RESPONSIBILITY (1973). 2. This phenomenon is illustrated by examining the compilation of the 500 largest American corporations, which appears annually in Fortune magazine, for the period 1963-1973. 3. See R. VERNON, SOVEREIGNTY AT BAY (1972); A Special Report-Multinational Corporationsin a Changing Environment, FORTUNE, Aug. 1973, at 52. 4. See Irwin & Stanley, Regulatory Circumvention and the Holding Company, 8 J. EcoN. ISSUES 395 (1974). See generally NATIONAL ASS'N OF REGULATORY UTILITY COMMISSIONERS, REPORT OF THE AD Hoc COMMITTEE ON NON-UTILITY INVESTMENTS (1972). 5. See FEDERAL TRADE COMMISSION, CURRENT TRENDS IN MERGER ACTIvITY (1971). Washington University Open Scholarship 38 WASINGTON UNIVERSITY LAW QUARTERLY [Vol. 1974:37 changes it is appropriate to ask: Will the antitrust laws be effectively enforced? Can they be enforced? Is the Sherman Act a declaration of economic freedom or does the statute merely reflect the rhetoric of a bygone era? The answers to these questions depend, of course, on one's philosophy of market competition and one's view of corporate behavior. We will argue that public and private antitrust enforcement has seriously shortchanged the fundamental purpose of the American antitrust laws, namely, to protect, police, and, if necessary, rehabilitate competitive market structures in the economy.7 First, we will review the ,basic tenets of the two underlying "schools" of antitrust policy, the structuralist and conduct/performance Schools. Secondly, we will survey the records of both private and public antitrust enforcement and review the advantages and disadvantages of each. Thirdly, we will argue that an alternative to present antitrust enforcement responsibilities and practices is necessary, and suggest that establishing a Federal Industrial Reorganization Commission may be the only effective means to ensure that economic competition, diversity, and dynamism prosper and prevail in the decades ahead. Such a solution is currently before Congress in the proposed Industrial Reorganization Act (Hart Bill)." II. THE Two SCHOOLS OF ANTITRUST THOUGHT Understanding the deficiencies of present antitrust enforcement requires an appreciation of the respective policies advanced by the two 6. Ch. 647, 26 Stat. 209 (1890), as amended, 15 U.S.C. §§ 1-7 (1970). 7. Northern Pac. R.R. v. United States, 356 U.S. 1, 4 (1957): The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition. For discussion of the legislative intent of the Sherman Act, see W. Ln-wiN, LANv AND ECONOMIC POLICY IN AMERICA: THE EvoLTrrIoN OF THE SHERMAN ANTITRUST AcT (1965); H. THORELLI, Tim FEDERAL ANTITRUST POLICY: OR0GATION oF AN AMEmCAN TnADnmox (1955); Bork, Legislative History of the Sherman Act, 12 J.L. & ECON. 118 (1966). 8. S. 1167, 93d Cong., 1st Sess. (1973). https://openscholarship.wustl.edu/law_lawreview/vol1974/iss1/7 Vol. 1974:37] ANTITRUST ENFORCEMENT dominant schools of antitrust thought-the structuralist school and the conduct/performance school.' A. The StructuralistSchool The structuralist school holds that the environment in which a firm operates is the critical determinant of that firm's pricing, output, innovation, and investment decisions. Structuralists assert that the factors which constitute that environment-and thus the critical determinants of market performance-are the number of firms in the industry, the size of the firms, the difficulty or ease of market entry, and the differentiation of the firm's products or services. Structuralists argue that a firm in a competitive environment lacks discretionary control over market prices and, therefore, is forced to operate at optimum cost and efficiency by adjustments of its production and output. To the extent that the pursuit of profit maximization produces optimum efficiency and innovation, competition literally disciplines the firm to conduct itself in a socially desirable manner. The structuralist school asserts that noncompetitive industry (...truncated)