Antitrust, Mergers, And CompetitionPolicy (9)

7/29/2019 Antitrust, Mergers, And CompetitionPolicy (9)

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Antitrust, Mergers, and Competition Policy(9)

Copyright 2008 The McGraw-Hill Companies, All Rights Reserved.Dr. Elycheikh / Business Ethics, KIC - Spring 11/12


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Key Learning Objectives

Understanding the dilemmas corporate power presentsin a democratic society

Knowing the objectives of antitrust and competitionlaws

Recognizing the key issues in contemporary antitrustpolicy

Analyzing the reasons for mergers and acquisitions, andhow have they affected the relationship betweenbusiness and its stakeholders

Assessing how competition policies compare aroundthe world, and what impact globalization has had onantitrust enforcement

2Dr. Elycheikh / Business Ethics, KIC - Spring 11/12


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The Dilemma of Corporate Power

Corporate power

The capability of corporations to influencegovernment, the economy, and society, based on

their organizational resources

Power can be a function of size and worlds largest

corporations are very big



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The Dilemma of Corporate Power Economic power is evident when compare largest

corporations annual sales revenue with countries

whose GPD (gross domestic product) is at samelevel Figure 10-2 shows this comparison

The dilemma of corporate power concerns howbusiness uses its influence, not whether it shouldhave power in the first place



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Antitrust Laws

AntitrustLaws that prohibit unfair, anti-competitive practices bybusiness

Term derives from trust, the old-fashioned word forgroups of companies that joined together to divide upmarkets and limit competition New term for trust is cartel

The term antitrust law is used in the U.S., most othercountries use the term competition law



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Objectives of Antitrust and Competition Laws

The protection and preservation of competition

To protect the consumers welfare by prohibitingdeceptive and unfair business practices

To protect small, independent business firms fromthe economic pressures exerted by big businesscompetition

To preserve the values and customs of small-town

America



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The Sherman Act Prohibits contracts, combinations, or conspiracies that

restrain trade and commerce

Prohibits monopolies and all attempts to monopolizetrade and commerce

Provides for enforcement by the Justice Department,and authorizes penalties for violations



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The Clayton Act Prohibits price discrimination by sellers

Forbids requiring someone to buy an unwanted

product or service in order to get another one theywant

Prohibits companies from merging if competition islessened or a monopoly is created

Outlaws interlocking directorates in large competingcorporations



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The Federal Trade Commission Act

Created the Federal Trade Commission to help enforceantitrust laws

Prohibits all unfair methods of competition Gives more protection to consumers by forbidding

unfair business practices



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The Antitrust Improvements Act

Requires large corporations to notify the JusticeDepartment and the Federal Trade Commission aboutimpending mergers and acquisitions

Expands the Justice Departments antitrustinvestigatory powers

Authorizes the attorneys general of all 50 states to

bring suits against companies that fix prices and torecover damages for consumers



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Antitrust Law Exemptions

Some organizations are not covered

For example, Major League Baseball

Others not covered Labor unions

Agricultural cooperatives

Insurance companies (regulated by State law)

Business transactions related to national defense



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Antitrust Enforcement at the Federal Level



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Key Antitrust Issues - Monopoly

Does domination of an industry or a market by oneor a few large corporations necessarily violateantitrust laws?

Should the biggest firms in each industry be

broken up? The courts have found that monopoly per se is not

illegal If a company dominates the market because it offers

a superior product or service, has inventedsomething unique, or even because it is just lucky,that is not against the law

If, however, a firm uses its market dominance torestrain commerce, compete unfairly, or hurtconsumers, then it may be found guilty of violatingantitrust laws



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Key Antitrust Issues - Innovation

In early days of antitrust law, regulators promotedcompetition in order to provide consumer choiceand keep prices down

Today, in the fast-paced economy, regulators haveincreasingly promoted competition to fostertechnological innovation

Quote from Federal Trade Commission Chairman:

Innovation is more and more the central arena inwhich competition plays out. [It] is the hot issue forthe foreseeable future.



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Key Antitrust Issues High Technology Businesses

Economy has changed from when antitrust lawswere crafted in the late 19th and early 20th century

We are now in the information age, where primarycurrency is intellectual property

Some argue that the basic principles of antitrustlaw are not applicable today Monopolies in high-tech businesses are inherently

unstable with low barriers to entry and dynamictechnological change constantly changing basis ofcompetition

Courts are struggling to resolve ways antitrust lawsapply to high tech industries



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Corporate Mergers

Corporate merger

A combination of one company with another

Vertical mergers

Occur when the combining companies are at differentstages of production in the same general line ofbusiness

Horizontal mergers

Occur when the combining companies are at the samestage or level of production or sales

Conglomerate merger Occurs when firms that are in totally unrelated lines of

business are combined16Dr. Elycheikh / Business Ethics, KIC - Spring 11/12


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Three Different Types of Corporate Mergers



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Forces Driving Mergers in the 1990s and 2000s

Technological change Major companies jockeyed for position in rapidly evolving

technologies

Changes in regulatory environment Examples include telecommunications deregulation and

changes in health care industry laws

Globalization Companies found they needed to be big to operate on the

global stage

Stock price appreciation Bull market in late 1990s gave some companies the means

to purchase others



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Value of mergers and acquisitions, 1990 2005



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Consequences of Corporate Mergers

What stakeholders will be helped and whatstakeholders will be hurt by wave of corporatemergers?

Mergers bring benefits to the firm, like economies of

scale and access to new technologies Sometimes, however, undermine responsibility to

some stakeholder groups Examples include employees losing their jobs and

communities negatively impacted by companies movingout

Shareholders can lose if the merger is not well thoughtout or acquisition was overpriced



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Comparative Competition Policies

Europe has lagged behind U.S. in antitrustregulation, but is catching up

EU today has complete set of competition policies,however enforcement emphasis is different Attention paid to market domination by former

state-run enterprises

Concern with price discrimination across borders

Strong inclination to protect small business Developing nations have moved to adopt their own

competition policies



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Antitrust Enforcement and National Competitiveness

Regulators have dilemma when goal of competitive marketconflicts with goal of strong economy, relative to othercountries

Since mid-1980s U.S. has permitted cooperative activitiesamong firms where appropriate to enhance theircompetitiveness in the global economy

The 1984 National Cooperative Research Act (NCRA)sought to balance cooperative R&D with competitionby instructing the courts to use a rule of reason

European regulators have similarly permitted joint R&Daimed at improving the competitiveness of their industries

Regulators have also loosened rules governing jointproduction agreements to permit economies of scale



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Enforcing Antitrust Laws against Foreign Firms

In recent years, regulators have been more willing toaddress possible violations of antitrust law by foreigncompanies

Example - requiring merged Swiss drug companiesSandoz and Ciba-Geigy to divest product lines in theU.S. to avoid being a monopoly

European regulators have become more active in

enforcement against U.S. companies Example European court in 2005 upheld EUs veto of

General Electrics acquiring of Honeywell



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Harmonization

Harmonization is process being used to coordinate laws andenforcement of competition policies across countries

Several bilateral treaties are in place

OECD has worked to coordinate antitrust enforcement

EU and U.S. now jointly review global mergers

EU also coordinating more closely with Japan Fair Trade Commission

Despite these efforts, lack of common standards creates a problem forcross-border mergers

Brookings Institution report has called for multi-country effort toharmonize competition policies

25D El h ikh / B i Ethi KIC S i /

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Antitrust, Mergers, And CompetitionPolicy (9)

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