The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

The Economic
and Legal Context

Anticompetitive horizontal practices may occur in market settings ranging from fragmented industries to true monopolies. The nature of the practices, however, is likely to differ in each case. In an industry with many firms, the primary concern is with efforts at explicit collusion or implicit coordination in order to increase profitability above the competitive minimum. Where the number of firms is small—that is, in an oligopoly—the same possibility of explicit or implicit price cooperation or collusion exists, but anticompetitive conduct also may include some strategies by a firm to disadvantage or drive out its rivals or to deter possible entrants. Such strategies of predation and exclusion also may arise in the case of monopolies and dominant firms, whereas those firms engage in price coordination less frequently since they face few if any capable rivals.

The antitrust laws address this broad spectrum of anticompetitive conduct. Section 1 of the Sherman Act forbids any “contract, combination, … or conspiracy in restraint of trade …”, language intended to prevent collusion among firms. Section 2 of that act prohibits actions that would “monopolize, or attempt to monopolize” a market. This is directed at acts designed unfairly to achieve or maintain market dominance. Section 5 of the Federal Trade Commission Act encompasses all of this in its sweeping ban on “unfair methods of competition.”

Issues of horizontal practice differ from the problems addressed in Part I of this book. There the focus is upon market concentration and especially increases in concentration as a result of mergers that affect the intensity of competition in the industry. The practices discussed in this section are not the result of any structural change in an industry. Rather, they represent behavior patterns that arise within a given industrial structure as firms seek to increase their profitability either through closer cooperation with horizontal competitors or through aggression against one or more of them. We address these two categories of concern—cooperation and aggression—in that order.

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