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Government Monopoly Mergers and Acquisitions: Antitrust
Government Monopoly Mergers and Acquisitions: Antitrust
GOVERNMENT policy for dealing with MONOPOLY. Antitrust laws aim to stop abuses
of market power by big companies and, sometimes, to prevent corporate MERGERS
AND ACQUISITIONS that would create or strengthen a monopolist. There have been
big differences in antitrust policies both among countries and within the same
country over time. This has reflected different ideas about what constitutes a
monopoly and, where there is one, what sorts of behavior are abusive.
In the United States, monopoly policy has been built on the Sherman Antitrust Act of
1890. This prohibited contracts or conspiracies to restrain trade or, in the words of a
later act, to monopolies commerce. In the early 20th century this law was used to
reduce the economic power wielded by so-called "robber barons", such as JP Morgan
and John D. Rockefeller, who dominated much of American industry through huge
trusts that controlled companies' voting shares. Du Pont chemicals, the railroad
companies and Rockefeller's Standard Oil, among others, were broken up. In the
1970s the Sherman Act was turned (ultimately without success) against IBM, and in
1982 it secured the break-up of AT&T's nationwide telecoms monopoly.
In the 1980s a more LAISSEZ-FAIRE approach was adopted, underpinned by
economic theories from the CHICAGO SCHOOL. These theories said that the only
justification for antitrust intervention should be that a lack of competition harmed
consumers, and not that a firm had become, in some ill-defined sense, too big. Some
monopolistic activities previously targeted by antitrust authorities, such as predatory
pricing and exclusive marketing agreements, were much less harmful to consumers
than had been thought in the past. They also criticized the traditional method of
identifying a monopoly, which was based on looking at what percentage of a market
was served by the biggest firm or firms, using a measure known as the
HERFINDAHL-HIRSCHMAN INDEX. Instead, they argued that even a market
dominated by one firm need not be a matter of antitrust concern, provided it was a
contestable market.
In the 1990s American antitrust policy became somewhat more interventionist. A
high-profile lawsuit was launched against Microsoft in 1998. The giant software
company was found guilty of anti-competitive behavior, which was said to slow the
pace of innovation. However, fears that the firm would be broken up, signaling a far
more intervention list American antitrust policy, proved misplaced. The firm was not
severely punished.
In the UK, antitrust policy was long judged according to what policymakers decided
was in the public interest. At times this approach was comparatively permissive of
mergers and acquisitions; at others it was less so. However, in the mid-1980s the UK
followed the American lead in basing antitrust policy on whether changes in
competition harmed consumers. Within the rest of the EUROPEAN UNION several big
countries pursued policies of building up national champions, allowing chosen firms
to enjoy some monopoly power at home which could be used to make them more
effective competitors abroad. However, during the 1990s the European Commission
became increasingly active in antitrust policy, mostly seeking to promote competition
within the EU.
In 2000, the EU controversially blocked a merger between two American firms, GE
and Honeywell; the deal had already been approved by America's antitrust