Recent changes in antitrust policy

Abstract

The economic efficiency of the distribution system that is questioned is dealt together with the its tendency to stimulate inter- brand competition. Sylvania proved to be a revolutionary case in the sense that its consequences also are believed to affect other issues in US antitrust.36 This is said to raise an important question whether the post-Sylvania mode of analysis in the US, which puts increasing emphasis an economics will be followed by UK and EU ör the pre- Sylvania approach will continue. (VVhish, 1989: 550). The great virtue of Sylvania depends on the fact that it displays a higher degree of economic sophistication and, if generally applied, it introduces an approach which makes antitrust a proconsumer, rational policy önce again.SUMMRRV RND CONCLUSION There has been an ever continuing debate in the field of industrial organization concerning whether there is a tenable economic case for antitrust policy ör not. in order to answer this question, two important paradigms in industrial organization are discussed with a brief reference to a third öne; contestable market theory. A rather compact survey of the economic paradigms together with the empirical evidence supporting them formed basics of this work. The next step has been to underline the changing trends in competition policy with reference to a remarkable case in this context, the Sylvania case. Sylvania case is special in the sense that it highlights a similar policy in US and EU in the field of competition. The mainline paradigm in industrial organization constituted the economic case for competition policy for along time. Mainline paradigm is associated mainly with the names of Edward Mason, Joe Bain F.M. Scherer, Leonard Weiss and VViliiam G. Shepherd. The importance of structural factors like entry barriers, product differentiation, size distribution of firms in the emergence of collusion, elevating prices and evolution of supra-normal profits are put forth. The main attack towards the mainline paradigm and its followers in the last two decades came basically from Chicago School of economists like Harold Demsetz, Yale Brozen, Sam Peltzman, Richard Posner who provided efficiency explanation for large market shares and supra-normal profits of large firms, and they eventually formed the alternative paradigm. in 1982, Baumol, Panzar and VVillig, with their concept of contestable market, brought about the construction of a new industrial paradigm, which dwells on the industry conditions when entry into the market and exit are absolutely free. A brief presentation of these paradigms could be displayed by way of graphs in figüre A, B, and C below. The mainline paradigm is mainly concerned with market power and the chain of reasoning starting from structure to performance. TheThe thtee industrial organlzation paradigmsjn graphic representation3^. -- -----.....-../._..:._.^ FİGÜRE A: Mainline Parao'igm (Market Power) 3/ı«t P^ 7^__^^A ^P^_ UAC ^P* l Ju., FİGÜRE B: Alternative Paradigm (Market Efficiency) */»**[i>^^^^``~^^ X/',IMSe `T;-gvpf»ftaffAM pp>fi^`.sY^^^ ^^-'. ! '. ^ ' i U M X i ;Xb'U ^SMı1-U1a.U 1i 1. ^.^ FİGÜRE C: Contestable Market Paradigm V^^ t^ ' -^>r^5sp____- j^c t>m î l1_^ 3^Source: Green, 1967:487. ^3alternative paradigm, on the other hand, focuses on market efficiency. Needless to say, the empirical evidence concerning these two paradigms shows variations and it is still a point of hot debate between the followers of these paradigms. Only there is a recent suggestion that through statistical work over industry profitability and industrial concentration relationship the two paradigms could be reconcilable (Green, 1987: 49 1).38 A synthesis between the alternative and mainline paradigms that is believed to be in tune with the recent empirical findings concerning firm profitability and market share, and earlier findings showing a correlation between industry concentration and average profitability is put forth in a recent article by Chris Green as where S refers to industry structure, Ci refers to behavior of firms as members of an industry group, C2 being the managerial or entrepreneurial conduct of the firms, Pf refers to firm performance and P is industry performance (Green, August 1987:493). According to this reconciliation model, antitrust policies attacking market power or market share without clearly seeing that the power is attained or share is obtained by exclusionary means are not defensible (Green August 1987:494). Whatever philosophy might be followed concerning the antitrust 38 A recent study by D. J. Ravenscraft in 1984 concluded that `for a model which contains both collusion and superiority effects, a line of business profit equation with both market share and concentration does provide unbiased estimates of the two effects, while an industry equation, which only includes concentration overestimates the collusion effect* (Ravenscraft, 1984:386) Tolaws, everyone agrees on the fact that they are difficult to apply, the political considerations usually affect enforcement conditions too often, many breaches of antitrust laws go unpunished, moreover, the antitrust laws need to have a broader perspective instead of being enforced in the national sense. However, leaving aside these negative considerations concerning antitrust laws, it should not be forgotten that by restricting monopolies and by minimizing restraints on trade, the antitrust laws have succeeded in their goal of increasing competition. Nonetheless, in United States the Reagan Administration reflecting a President's hands-off philosophy of business regulation has filed almost no antitrust cases, civil or criminal, other than for price fixing, and it has made every effort to settle those inherited from earlier administrations. Same could be observed during the Bush Administration. The developments in the United States antitrust regulations and their enforcement are important in the sense that United States experience of antitrust creates an example for the mature phase of competition policy in European Union. It is widely argued that the completion of the internal market brings about the need for a reexamination of the basis of EU competition policy. There is also a widely held belief that the most appropriate model for that reexamination is the Chicago based neoclassical model, as developed by the enforcing agencies, some courts, and many influential commentators in the United States (Frazer, 1990). The definition of a competition policy is a matter of political choice so it should be addressed at a political level but the emergence of the tension between free competition and protectionism could be predicted as an EU problem specifidy or a general concern for us all. ?t