Antitrust law? Antitrust? Whose analysis is it? Why is it “the” analysis?
Antitrust is not defined in any of the provisions of the antitrust statutes. It can’t be translated into foreign languages. Antitrust was not enacted. It is not a coherent set of rules. You can’t look it up. Experts are required to interpret it. Much of it is in the eye of the professor. In their casebook, Eleanor Fox and Lawrence Sullivan write of “the central concern of antitrust” and its “several goals” and that “antitrust regulates economic structure and economic conduct through law.”3 They also tell us when a court decision is “a defeat for antitrust.”4 Timothy J. Muris, while chairman of the Federal Trade Commission, observed that there is much to do “to assure that antitrust avoids the mistakes of its past.”5
Antitrust can’t be amended, reformed, or repealed. It is an intuitive mix of law, economics, and politics; a mystical collection of aspirations, beliefs, suspicions, presumptions, and predictions. Antitrust is a quasi-religious faith independent of the provisions of the antitrust statutes.
Antitrust has many doctrines that are analyzed endlessly in lectures, seminars, articles, and court opinions. The antitrust faith is based on four elements that are seldom mentioned but will be discussed in subsequent chapters of this book. They are as follows: (1) a belief in the legend of Standard Oil, (2) fear of corporate consolidation, (3) a belief in the magic of “market power,” and (4) faith that government can protect us from those evils.
Vague Statutes—Unaccountable Discretion
The antitrust statutes give to those in positions of power wide discretion to interfere with commercial activity and freedom of contract. Three provisions illustrate the point, two from the Sherman Act of 1890 and one from the Clayton Act of 1914.
Section 1 of the Sherman Act designated as a federal crime “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” That declaration of Congress would have outlawed any contract in interstate commerce, because every contract restrains some trade. (If I contract to sell you a wristwatch, I am restrained from selling the watch to someone else. You, in turn, are restrained from buying another product with the money that you paid to me.) To avoid that truism, the judiciary invented the so-called rule of reason, amending the prohibition by Congress of every contract in restraint of trade to prohibit only those contracts found by the courts to “unreasonably” restrain trade. As a result, unless the restraint is one that the Supreme Court has presumed to be unreasonable—such as the so-called per se offenses discussed later—it may be impossible to tell whether a contract is unlawful without a lengthy trial. Justice Louis Brandeis suggested that the trial should proceed along the following lines:
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the Court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the Court to interpret facts and to predict consequences.6
In other words, everything is relevant but nothing is determinative. An absolute prohibition by the legislature was turned into a delegation of discretion to jurors and judges to approve or disapprove contracts after a lengthy inquiry as to whether or not they restrain trade “unreasonably.”
Section 2 of the Sherman Act made it a crime “to monopolize” or “attempt to monopolize” any part of the trade or commerce among the several states or with foreign nations. No one knows what those words mean. Over the past century, judges and commentators, such as Areeda and Kaplow, have developed a vocabulary for talking about the subject, but no meaningful rules have emerged. Court declarations perpetuate ambiguity. According to the Supreme Court:
The offense of monopoly under section 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.7
In 1918 Justice Brandeis attempted to distinguish between contracts that promote competition and those that suppress or destroy competition but was unable to do so. Similarly, in 1966 the Court sought to differentiate between willful acquisition of monopoly power and being an effective competitor but was unable to state any rule for doing so. The result has been to leave to judges, juries, and officials at the Justice Department and FTC power to make arbitrary decisions on a subjective basis.
Most government activity under the antitrust statutes finds its support in section 7 of the Clayton Act, which prohibits corporate acquisitions “where … the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” Yet we have no workable definition of what constitutes “competition” and no way to measure it. Applying section 7, the Supreme Court under Chief Justice Earl Warren essentially declared all corporate mergers unlawful. Expressing concern with industrial “concentration” and desiring to protect “small business” from more efficient competitors, the Court during the 1960s decided every case in the government’s favor. First came the Brown Shoe case,8 which involved the acquisition by Brown (primarily a shoe manufacturer) of Kinney (primarily a shoe retailer). The Court held the merger illegal under section 7 in two ways: first, as a horizontal merger and, second, as a vertical merger. Both companies made shoes. Brown made roughly 4.0 percent and Kinney made roughly 0.5 percent of the nation’s shoes. Merger of the two manufacturers, said to be “horizontal” because it involved two companies directly competing with each other, was found illegal. The Court also held the merger of Brown and Kinney illegal as a “vertical” merger—i.e., one involving two companies that had a supplier-customer relationship—because Brown, selling 4.0 percent of the nation’s shoes, merged with Kinney, a retailer that accounted for 1.2 percent of U.S. retail shoe sales. The vertical merger of the supplier Brown with its customer Kinney was said to “foreclose” a share of the retail market otherwise open to manufacturer-competitors of Brown.
Four years later, in the Von’s Grocery case,9 the Court concluded that section 7 prohibited the merger of two grocery chains because the merger would result in ownership by a single firm of 1.4 percent of the grocery stores in the Los Angeles metropolitan area, accounting for 7.5 percent of the area’s grocery sales.
Mergers neither horizontal nor vertical—where the merged firms were not competing and did not have a supplier-customer relationship—were given the sinister-sounding name of “conglomerate” mergers. The Court upheld government action to prevent conglomerate mergers on theories that they raise “barriers to entry,” eliminate “potential competition,” or create opportunities for “reciprocal dealing.” Mergers that created “competitive advantages” were condemned for doing so. Economic efficiency created through merger not only didn’t serve as a defense but also became a basis for a conclusion of illegality.
By the late 1960s the operative question became not whether a merger was illegal but whether the government would oppose it. In 1968 the Justice Department published Merger Guidelines that were more permissive than Supreme Court rulings such as those in the Brown Shoe case.10 The result has been to transfer to government attorneys the arbitrary power to decide whether or not a merger will be allowed or prohibited, guided only by an irrational fear of corporate consolidation. Moreover, since 1976
