Antitrust Laws in the United States
Jonathan Blain Maiza
Abstract
This paper presents a brief history of antitrust laws in the United States, as well as the three different types of antitrust laws in the telecommunication industry. It also touches on their importance when it comes to prevent huge companies from joining forces to dominate the market, which can create a monopoly. A variety of cases are presented such as, United States vs. AT&T Corp (1974), and Federal Trade Commission vs. Heinz Inc. (2001). This paper also presents the effects of large companies merging with small businesses and the possible impact on the American people. **According to who?**The intervention of the government is essential for the survival of small businesses competing with huge corporations who are planning on merging in order to avoid a monopoly in the market.
Antitrust Laws in the United States
When people hear the word monopoly, they are quick to think of a game where they try to buy all the properties on a board. However, in the business world, the word monopoly may not bring so many positive thoughts to mind. When you think about monopolies, you think about the steel business and Andrew Carnegie, or the oil industry and John D. Rockefeller. The question at hand is if the word “monopoly” is the best way to promote growth and create equal opportunity. When mergers or buyouts occur in the cellular network industry, the government should intervene with antitrust laws to give equal opportunity to all phone carriers and prevent a monopoly from forming. In the 1800s, there were several large businesses known as “trusts.” These trusts fully controlled sections of the U.S. economy. Two of the most famous and profitable trusts were the U.S. Steel and the Standard Oil. With one company controlling an entire industry—setting prices and quantities available—there was no competition. Smaller businesses couldn’t even dream of competing with them, and people had no choice but to pay the high prices these monopolies were setting. The industry as a whole suffered; these monopolies were overpricing goods such as oil, steel, and sugar, and the quality of these goods was not a priority. These “trusts” threatened American prosperity and the America many were trying to build. Amid, the rich-trust owning-business people got richer; thus, the public got angry and demanded the Government to take action. President Theodore Roosevelt was the one who broke up many trusts by enforcing what came to be known as the famous “antitrust laws.” The purpose of these laws was to protect consumers by promoting competition in the marketplace.
Since the 1800s, there have been many antitrust laws that have been created to provide equal opportunity in all the industries. These antitrust laws, not only prevent mergers of companies that could form a monopolistic economy, but also prevent a variety of unethical practices. Technology is a big part of the world we live in today. Therefore, the business industry changes continuously, and mergers and buyouts occur without consumers knowing**Cite**. Three fundamental antitrust laws that should be taken into consideration in the cellular network industry to prohibit unlawful business practices and regulations for mergers are, the Sherman Antitrust Act (1890), the Clayton Antitrust Act (1914), and The Federal Trade Commission Act (1914).
Sherman Antitrust Law
The Sherman Antitrust Act of 1890 was the first major legislation passed to address oppressive business practices (OurDocuments) **What does this mean?** This law makes it illegal for "every contract, combination, or conspiracy in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize.” (Federal Trade Commission) **If this is a citation, could you say According to the Federal Trade Commission??**. The Sherman Act dictates that it is illegal for a company to become a monopoly if it is cheating or if it is competing unfairly. This legislation is an early example of the capitalist "competition law." This competition law was designed to ensure that the economic playing field remained competitive and fair. In fact, penalties for violating the act can range from civil to criminal penalties. Individuals violating these laws may be jailed for up to 10 years and fined up to $1 million. On the other contrary, corporations may have a fine of up to $100 million (Federal Trade Commission)**Citation?**. One important thing to note about this law is that the Sherman Antitrust Act did not make monopolies illegal. Its purpose is to provide a fair market that restricts unreasonable and harmful business practices such as, price fixing, rig bids, and divided markets that would harm consumers.
The telecommunication market is constantly growing. But the first monopoly problem regarding this market aroused in 1974 when the United States Department of Justice filed an antitrust suit against AT&T Corp. The suit charged AT&T for using their significant communication power in the market to control other companies that were seen as competition when it came to local and regional services. AT&T’s position in the market was seen as a monopoly that created unequal competition for others. This lawsuit created the divestiture of AT&T from Bell and Western Electric which made AT&T such a dominant company in 1982. During this time, technology started to be a big part of consumers’ lives, which caused the Justice Department to create a study in the market in order to determine how antitrust laws should act when it came to this industry. This study came to the conclusion that the telecommunication market had grown so rapidly that there was considered not too unfair competition, according to (Pinheiro, John)**Fix citation**. Today, T-Mobile and Sprint face a similar situation. These two large companies are looking to merge into one, but each is keeping their brand names. T-Mobile and Sprint already have a large percentage of the telecommunication market. According to Statista, T-Mobile holds 16.88 percent of the wireless carrier market and Sprint holds 12.8 percent. When merging, these two companies will hold one of the largest market shares of nearly 30 percent.
Clayton Act
Thanks to the Sherman Act, business practices in America were changing. But even though most trusts had been broken up, companies discovered that “mergers” were not explicitly made illegal by the Sherman Act of 1890 **Cite**. Therefore, companies stopped forming trusts, but they would unite with their competitors and this way they would still be able to control prices and production of goods. These mergers gave way to the Clayton Act that was passed in 1914. This act specifically addressed mergers and interlocking directorates, according to the (Federal Trade Commission) **Fix citation**. Interlocking directorates is the practice of one person making business decisions for competing companies such as Apple CEO, Tim Cook, making decisions for both Apple and Blackberry. Section 7 of the Clayton Act is what strictly prohibits “mergers and acquisitions” from “substantially lessen competition, or to tend to create a monopoly," when either a merger or an acquisition is completed. In 1976, the Clayton Act was amended so that if two large companies were planning a merger or acquisition, they needed to notify the government of their plans in advance. A recent example of this was, when AT&T and DirecTV went before Congress and announced they were planning a $48.5 billion acquisition in 2014. AT&T and DirecTV told members of the Congress that the merger was a good idea and fair because it encouraged competition and would pressure cable companies to lower prices, hence benefiting American consumers. However, this merger can be seen from many standpoints. For example, for smaller telecommunication companies, AT&T and DirecTV were only looking to benefit themselves in order to make more profit while other small companies who do not have the power to merge do not have a chance to compete against these two large companies. Eventually on July 24, 2015, after receiving approval from the United States Federal Communications Commissions and the Department of Justice, AT&T acquired DirecTV. Bill Baer, who was the AT&T Assistant Attorney General at the time of the Antitrust Division, came out with a statement saying “after an extensive investigation, we concluded that the combination of AT&T’s land-based internet and video business with the DirecTV’s satellite-based video business does not pose a significant risk to competition” (DOJ 2015).**Fix citation**
The Federal Trade Commission Act
The Federal Trade Commission Act of 1914 established the Federal Trade Commission and bans “unfair methods of competition” and “unfair or deceptive acts or practices” (FTC 1914). **Fix citation** The Federal Trade Commission board has a five-member board whose job is to regulate unfair and deceptive business practices. In the act, it states that no more than three members of the FTC can be of the same political party, and they are appointed for overlapping seven-year terms. This act was intended to limit the number of control a U.S. President and his or her political party have over the FTC. There was a separate act that was made to the Clayton Antitrust Act called the Hart-Scott-Rodino Act. This act established a premerger notification program, that provides the FTC and the Department of Justice (DOJ) with information about large mergers and acquisitions before they occur. The parties involved in these transactions must submit a premerger notification to the FTC and DOJ. These parties may not close their deal until the waiting period outlined by the HSR Act has passed, or the government has granted early termination of the waiting period (PremergerNotificationProgram).**Fix Citation** A recent example of the implementation of the Federal Trade Commission Act is Federal Trade Commission vs. Heinz Inc. In this case, the FTC sought a preliminary injunction to block Heinz Company from buying out Milnot Holding Company, which owned Beech-Nut Nutrition Corporation (FTC). This would’ve reduced the amount of competition in the baby food market from three to two, causing a duopoly due to the fact that Heinz and Beech-Nut are the nation's second and third largest producers of prepared baby food (FTC). The District Court denied the motion, but soon after, the parties abandoned the transaction. Cases like these are perfect examples as to why antitrust laws are put in place and enforced. Who is to say that after buying out Beech-Nut, Heinz wouldn’t go after the number one producer of baby food? With the client's, income, and inventory from both companies that could have become a reality. Therefore that duopoly would have created the perfect situation for a monopoly to occur in the near future.
The Federal Trade Commission is here to regulate unethical business practices and prevent a monopolistic environment from running this country. The U.S. thrives on competition, but if the big companies, plainly buy out all of the smaller companies there will be no competition left in the U.S. This is why these antitrust laws were in place in order to avoid large corporations from buying out all the competition or merging so as to dominate the market. Regardless of the industry, these antitrust laws were placed in order to benefit the consumers not the competitors. The market in the United States is considered as a very rich and mixed market as well as one of the largest markets in the world, and if a company is able to dominate that market, it would hurt the American people tremendously. As, technology is rapidly emerging our antitrust laws unfortunately are not. When new cases of antitrust laws are arising, we still use the same laws that were implemented in the 1800s by President Roosevelt. During those times, monopolies in the industry such as oil and rail were discussed. However, in today’s era, we’re talking about technology, and as technology is improving and becoming more accessible to not only consumers but also companies, they use this improved technology to their advantage. Antitrust laws are not against the forming of monopolies although they should. These laws arise against a monopoly only when it destroys the ability of another company to enter the market and compete.
In conclusion, antitrust laws eliminated the combinations of business practices that are blocking other companies to trade or compete, which is also known as a monopoly. Some monopoly examples in the past were John D. Rockefeller's oil company as well as other goods like steel. These were very impacting to too many citizens back in the late 1800s due to the fact that a monopoly can set an outrageous price that you are forced to pay since no other company is competing with it. This is why the Sherman Antitrust Act came in and prohibited any contract, trust, or conspiracy in restraint of foreign trade. This act was passed to put an end to monopolies, allowing citizens to have a choice of which company to buy their set goods from. Nowadays, there aren’t any monopolies. However, many companies have a vast majority of the market share. For example, when computer shopping, you will most-likely get a Microsoft computer or maybe an Apple computer. These two companies have a massive percentage of the market share but are not considered a monopoly because they are each other’s competitor. On top of that, there have other operating systems to choose from like Linux and a Google Chromebook. Other laws after the Sherman Antitrust Act were released like the Clayton Antitrust Act and The Federal Trade Commission. The Clayton Antitrust Act was an extension to the Sherman Antitrust Act. A big addition to the act was to block a loophole that was discovered. This addition to the act prohibited other companies from buying stock shares from competing firms which then led to a buyout of the company merging them both into one. The Clayton Antitrust Act was just an add-on to fix what the Sherman Antitrust Act missed. When large companies merge, it limits the competition creating strict prices. A current situation that came upon to the cellular network was the thought of T-Mobile and Sprint merging into one company. This will split the four major companies in the cell phone provider services into just three major Networks. As of now, the largest networks in cell phone service are Verizon, AT&T, T-Mobile, and Sprint. If T-Mobile and AT&T were to merge, it would limit the diversity of cost between the companies making it harder for customers to choose a plan that they find best. In the past, MetroPCS and T-Mobile merged and this was allowed because MetroPCS was not a big competitor, however, imagine now that Sprint and T-Mobile would want to merge. This means T-Mobile, MetroPCS, Boost-mobile and Sprint all in one. What I see them doing is merging the network. But, they will be keeping the company’s name like what T-Mobile and MetroPCS did. They joined their network while maintaining the company’s name. This is not the only time that merge offers have come to the plate. Back in 2011, AT&T wanted to buy T-Mobile out, but, failed. Sprint and T-Mobile were going to merge in the past as well but decided it will cause a lot of trouble and work. A very known company that has merged with another well-known company is AT&T and DIRECTV. Last year, AT&T and DIRECTV merged into one company meaning that AT&T has U-Verse service along with DIRECTV satellite television. The merging of these top dog companies is disastrous to small businesses. According to smallbusiness.chron.com website, “when two or more companies merge, the resulting company has more resources than either of the original companies had alone. Because of its increased resources, it can often lower the prices of its goods and services, which, in turn, attracts more customers. A smaller business operating in the same industry isn't usually able to lower its prices to match this new competitor, so it will often lose customers and may eventually fail. In some cases, the merged competitor may offer to purchase the smaller business.” Just imagine how hard it must be for the little guys in the industry like cricket and simple mobile to keep up compared to AT&T and Verizon. Small businesses can’t have the same amount of price competitiveness as the top dogs in the industry. The big companies can price their products lower due to bulk purchasing or having the advancement of profiting at a low price compared to a small business who will, most likely, have higher costs than the leaders of the market. The intervention of the government is essential for the survival of small businesses that are competing with large companies who are planning on merging.