Antitrust

 

Author Definition

 

Definition

Antitrust is the body of law that controls creation, use and abuse of market power. In some jurisdictions, including the United States, antitrust is another word for competition law. In the European Union, antitrust denotes the part of competition law that covers abuse of dominance and anticompetitive agreements but not merger control. This entry will use the word in the more generic sense.

 

Commentary

Antitrust, or competition law, removes impediments to competition and thus helps make markets work better for consumers and other market participants. It is focused on three types of conduct or behavior: agreements, single-firm conduct, and mergers and acquisitions. Competition laws generally declare to be illegal anticompetitive agreements, anticompetitive conduct by dominant or monopoly firms, and anticompetitive mergers. Much weight is put on the word “anticompetitive.” In some cases the inquiry – Is this conduct anticompetitive? — is easy, and in some cases it is very complex. Moreover, some jurisdictions allow justifications for anticompetitive conduct and others do not.

Agreements. Under United States law, Section 1 of the Sherman Act prohibits “restraints of trade.” This provision is read to prohibit anticompetitive agreements. Some agreements are clearly anticompetitive in that they remove competitive forces from the market and have no efficiency or innovation qualities. These agreements are called “naked restraints” and are classified as illegal without any further inquiry; that is, they are “illegal per se.” Agreements among competitors to fix prices, divide markets, or allocate production (“cartels”) are illegal per se. Agreements that are not illegal per se are subject to a rule of reason. Under the rule of reason, an agreement is anticompetitive and illegal if the anticompetitive aspects outweigh the procompetitive aspects. Efficiencies and innovation qualities are considered to be procompetitive.

In the European Union, the antitrust provisions are found in the Treaty on the Functioning of the European Union. The Treaty provision applicable to agreements invalidates agreements that have the object or effect of restricting or distorting competition unless justified by a showing that they are (in effect, this is a summary) productive or efficient and a fair share of the benefits goes to consumers. Naked cartels are agreements that restrict competition by object. Naked cartels virtually never meet the requirements for justification.

Unilateral conduct. The US Sherman Act, Section 2, prohibits “monopolization” and conspiracies and attempts to monopolize. To be liable for monopolization, a firm must have monopoly power and must use that power in anticompetitive ways likely to enhance or entrench its power. The law is reluctant to condemn unilateral acts for fear that antitrust intervention will chill pro-competitive and innovative incentives and protect inefficient small firms. Accordingly, under US law, a monopoly firm has no duty to deal with its competitors except under narrowly-defined circumstances. The Trinko case (US Sup. Ct. 2004) most famously stands for this proposition. The US law on monopolization does not prohibit exploitative conduct. Very high prices are an example of exploitative conduct. The law does not prohibit excessive pricing.

EU competition law prohibits abuse of a dominant position. A firm might have dominant power at a somewhat lower level than is required for monopoly power. Under EU law, dominant firms have a special responsibility not to distort competition, for example, by exclusionary conduct that blocks rivals’ freedom to contest markets on their merits. Intel v. Commission (EU Court of Justice 2017) provides examples. EU law prohibits exploitative as well as exclusionary conduct.

Mergers. US antitrust prohibits mergers whose effect may be to substantially lessen competition. The EU merger regulation prohibits mergers that create a significant impediment to effective competition. The difference in statutory language is not significant; both sets of laws mean to proscribe mergers that are likely to harm competition. If the merger will probably create or increase market power, it is likely to harm competition. If the merger creates efficiencies that are likely to get passed on to consumers, that is a procompetitive quality and is considered in the analysis. Mergers between competitors (horizontal mergers) are the category most likely to be targeted by antitrust merger control. Mergers between buyers and suppliers, acquisitions of potential rivals, and other (conglomerate) mergers may also fall afoul of the merger law. EU law has been somewhat more aggressive than US law against non-horizontal mergers.

Neither the US nor the EU allows a national champion or other public interest defense to an anticompetitive merger.

What is the remedy for anticompetitive mergers? Commonly, the agency and parties agree to spin-offs of offending assets and accompanying behavioral obligations. In contemporary times, relatively few mergers are flatly prohibited, although prohibition is an available remedy, and divestiture is an available remedy for completed anticompetitive mergers (in jurisdictions where consummated mergers may still be subject to challenge).

Competition law of other nations. The competition laws of other nations are quite similar to those of the US and/or the EU. EU is the more frequently followed model. Some of the more common divergences from the US/EU model are: Asian nations may include in their unilateral conduct laws a provision for abuse of a superior bargaining position, and they may recognize antitrust violations for unfair conduct even if the conduct does not harm the market or consumers. (Certain Western countries share these characteristics.) They are more likely to allow an industrial policy defense.

Developing countries are likely to have more expansive competition laws than US and EU. Their markets generally work less well and barriers to entry are higher, and the countries need economic development. Developing countries’ competition laws often value inclusive growth, are more vigilant against exclusionary and exploitative conduct, and allow public interest defenses to help workers, small business, and historically excluded majorities. The South African case Babelegi (Court of Appeal 2020) is an example of South Africa’s application of its abuse of dominance law to challenge price gouging during the coronavirus pandemic.

 

Bibliography

Eleanor M. Fox and Daniel A. Crane, Global Issues in Antitrust and Competition Law (2d ed. West Academic 2017).

David J. Gerber, Competition Law and Antitrust: A Global Guide (Oxford University Press 2020).

Barry E. Hawk, Antitrust and Competition Laws (Juris Publishing 2020).

Author

  • New York University

Quotation

Eleanor M. Fox, Antitrust, Global Dictionary of Competition Law, Concurrences, Art. N° 20093

Visites 1372

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

Field of competition law and policy. In the EU context, both the rules governing anti-competitive agreements and practices (cartels and other forms of collusion) based on Article 101 TFEU and the rules prohibiting abuses of (existing) dominant positions based on Article 102 TFEU are commonly referred to as Antitrust.

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