The 1985 Federal Vertical Restraints Guidelines: Requiescat in Pace

By Kamerschen, David R. | Southern Business Review, Spring 2000 | Go to article overview

The 1985 Federal Vertical Restraints Guidelines: Requiescat in Pace


Kamerschen, David R., Southern Business Review


Antitrust is a prohibiting set of arrangements-laws, courts, and enforcement agencies-that indicate the "rules of the game" designed for business decision makers to follow in their quest for profits or other goals. However, these three arrangements may be in conflict with one another. This author discusses the sources and nature of this conflict in a particular antitrust situation. Laws, Courts, and Enforcement Agencies

Laws U. S. antitrust policy is based on three principal laws. The Sherman Act of 1890 prohibits any agreements in restraint of trade (e.g., collusion) or any attempt to monopolize a market. The Clayton Act of 1914 outlaws certain kinds of market conduct such as price discrimination, tying contracts and exclusive dealerships, horizontal mergers, and interlocking directorates. The Federal Trade Commission Act of 1914 established the administrative agency, the Federal Trade Commission (hereinafter FTC), to investigate "unfair methods of competition." In general terms, the Sherman Act operates in a curative manner, whereas the Clayton and FTC Acts operate in a preventive manner (and as correctives of the Sherman Act). The general intent of the U. S. Congress in passing the antitrust laws is a matter of dispute. Two broad classifications of economic explanations are offered for why these laws were passed.' The first approach suggests that U. S. antitrust laws were designed to promote the public interest. According to this approach, the antitrust laws, by facilitating greater competition, reduce, if not eliminate, the wedge or gap between price and marginal cost and reduce or eliminate any discrepancy between marginal rates of substitution of consumers and the marginal rate of transformation of producers. The purpose is not to eliminate monopolists' profits, which may not even exist if costs are high and demand is weak. Thus, public-interest theory emphasizes that the antitrust laws attempt to improve market performance by regulating market structure and conduct (behavior) and by protecting, preserving, and promoting competition crucial to the success of a market economy in promoting efficiency and delivering the ensuing benefits to consumers. That is, competition generally forces producers to contain costs and respond to consumer demands by developing innovative products that are distributed at low prices. However, if significant externalities are' involved, society may be worse off if competition is pushed, in which case regulations are needed.2 Thus, the problem may not be just a lack of competition.

The second, or private-interest approach, argues that U. S. antitrust laws were designed to help some special-interest group other than consumers' Since the government, like the market, is imperfect, the passage and enforcement of antitrust laws may be controlled or guided by private interests. Thus, when businesses use the political marketplace for their own goals, their rentseeking worsens the public interest in the classic prisoners' dilemma sense.3 While proponents of the U. S. antitrust acts claim they serve the public interest, some empirical results suggest that they appear as susceptible to the influence of special-interest groups as is any public policy. This same possibility of private-interest domination applies to the courts and antitrust enforcement agencies.

Courts' The three-tiered structure of the federal courts consists of district courts, courts of appeals, and the Supreme Court. The decisions of the Supreme Court are binding on all federal courts in the United States. Each state has a court system that is usually tripartite, also. These generally consist of trial courts, appellate courts, and state supreme courts. The decisions of state supreme courts are binding on all the courts in that state.

Some antitrust cases are restricted to state jurisdictions since the laws are state-createdand-enforced statutes and these cases are not treated uniformly throughout the nation.

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