Fully Grown by Dietrich Vollrath

Author:Dietrich Vollrath
Language: eng
Format: epub
Tags: BUS000000 Business & Economics / General
Publisher: University of Chicago Press
Published: 2020-05-31T16:00:00+00:00

Putting Limits on Market Power

Intellectual property rights represent a legal means of creating market power, and so a markup. But the legal system also has a method for challenging and removing market power, known as antitrust enforcement. Antitrust law goes back to the Sherman Act, passed in 1890, and is often seen as a response to monopolies like Standard Oil that operated at the time. This act, along with some subsequent additions, gave the federal government the ability to block certain actions or break up firms if they were deemed to be anticompetitive.

The legal history of the Sherman Act and its enforcement is beyond the scope of this book, but much of it deals with the very questions that we’re wrestling with here. What constitutes “too much” market power? When has a firm engaged in behavior that is anticompetitive versus just being good at what it does? As in the case of IPRs, there is no clear answer to these questions. However, also like the trend toward stronger IPRs, we can see that there has been a trend in the amount of antitrust enforcement over time.

Figure 11.1 plots the number of cases taken on by the Department of Justice’s antitrust division over time. The division classifies cases as one of three types. “Restraint of trade” refers to cases brought against firms or groups of firms under section 1 of the Sherman Act. In this category, firms are investigated for engaging in activities that are meant to drive others out of business. This might include something like a price-fixing agreement between firms. Under “monopoly” fall cases under section 2 of the Sherman Act, or those cases in which a firm has a monopoly and engages in actions that maintain a monopoly that does not result from a superior product or business acumen. The actions against Standard Oil and US Steel were made under section 2 of the Sherman Act, and more recent examples include the breakup of AT&T in the early 1980s and the case brought against Microsoft in the 1990s. Finally are “mergers,” cases brought under the Clayton Act, which prohibits businesses from buying assets from another business if doing so results in a monopoly or restraint of trade.

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