Where Do You Draw the Line? Exploring Antitrust Enforcement and the Regulation of Big Business in Modern America
July 23, 2018
The United States is unique in that two federal enforcement agencies have antitrust enforcement jurisdiction. The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) both enforce antitrust law. The Sherman Antitrust Act of 1890 was the United States’ first attempt to curve anticompetitive business practices by firms followed by the Clayton Act of 1914 and the Federal Trade Commission Act of 1914 designed to add depth to their regulation.
President Teddy Roosevelt unleashed antitrust enforcement to break up the enormous trusts existing in the United States at that time. The successful dismantling of Northern Securities Co. (a JP Morgan trust company) in 1903 solidified antitrust law as a powerful force protecting consumers from unfair business practices. However, as time progressed and companies became more complex and more nuanced in their respective markets, antitrust enforcement grew more complex as well. Today, the existence of companies like Google and Amazon that reach across market boundaries makes modernizing the interpretation of antitrust law difficult.
The original goal of breaking up existing trusts and large companies after a merger is consummated is no longer the primary goal of antitrust enforcement agencies. In the age of consolidation, the agencies now do not let companies merge until the completion of a proper investigation. Big mergers like United Airlines and Continental Airlines and more recently AT&T and Time Warner are examples of highly publicized antitrust cases that make headlines. However, there are smaller mergers that never make the front page, like hospital mergers or chemical company mergers. There is a threshold of monetary value between the two companies that the merger must exceed in order to initiate a review prior to the companies merging. However, if a smaller merger occurs and the FTC receives a complaint, then they can retroactively investigate the merger. Typically, antitrust enforcement only focuses on horizontal mergers (companies that perform the same service coming together). Vertical integration (merging with companies above or below on the supply chain) is not typically viewed as anticompetitive. Once companies file a merger under the provisions set forth by the Hart-Scott-Rodino Act and if the government feels that it is unlawful, then either the FTC or the DOJ investigates, not both. Each agency specializes in certain markets. For example, the DOJ typically deals with airline and telecommunications mergers while the FTC typically deals with chemical and healthcare mergers.
(Image: Consumer product diagram showing which parent companies control everyday items. Source: Visual Capitalist )
The most common area of contention during antitrust investigations is defining the relevant markets and determining the market share of the companies. Unlike other areas of law, antitrust law relies heavily on econometrics and economic analyzation of markets. The FTC has its own Bureau of Economics that employs economists full time to analyze the markets for each investigation. Some cases have clear market definitions, but today with companies dabbling in so many different affairs, determining the relevant market information for investigations becomes challenging. For example, the government tosses around the idea of challenging Amazon’s business practices as a violation of antitrust law often, but with the company spanning across so many industries, such an investigation has been deemed nearly impossible to conduct.
Another nuanced area of antitrust enforcement in the US is how blocking a merger occurs. In the United States, the government must file a lawsuit to block a merger and convince a judge that the merger will be anticompetitive. The burden falls on the government to not only investigate, but then also prove their case in a court of law. This is different than other countries. For instance, the European Commission, located in Brussels, is the European Union’s antitrust enforcement agency. If the European Commission finds a merger to violate antitrust law then they have the power to block it without ever presenting a case in front of a judge.
(Image: Flow chart depicting airline consolidation. Airlines are one of the most obvious example of horizontal mergers. Source: CNN Money )
In modern America, the Presidential administration also plays a powerful role in dictating what cases the Justice Department and the FTC pursue. For example, The head of DOJ’s antitrust division and the Chairman of the FTC are both Presidential nominees. Typically conservative administrations take a more lackadaisical approach towards antitrust enforcement as they prefer to have an open, laissez faire type economy. However, the status quo is not what it used to be in politics today. The first antitrust matter President Trump commented on was the AT&T/ Time Warner merger and the President made it clear he was not in favor of the deal. There is a Constitutional debate as to whether Trump infringed upon the Justice Department’s autonomy to evaluate the case, but either way the case was brought to trial. The AT&T/Time Warner case is a great example of a classic vertical integration merger. Most antitrust scholars agree that this case had no business being brought to court. A common theme in recent years for big mergers like this is instead of blocking the merger fully, the government will make the company divest or sell certain aspects of one of the merging parties to limit the anticompetitive effects. Instead of asking for some concessions from AT&T and Time Warner, the government tried to block the merger completely. Judge Richard Leon issued his ruling on June 12th saying he saw no evidence that the merger would cause harm to the market, using unusually harsh language to lambaste the government’s case. Judge Leon’s decision agrees with years of precedent stating that vertically integrated businesses pose no harm to consumers or the market as a whole.
With big business at an unprecedented size and the government struggling to find its identity when it comes to enforcement, the coming years will be fascinating to watch as a new chapter of antitrust enforcement begins.
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