The Basics of Antitrust Policy

144 Pages·2000·10.3 MB·English

by  World Bank Group

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WORLDB ANKT ECHNICALP APERN UMBER1 60
The Basics of Antitrust Policy
A Review of Ten Nations and the European Communities
Roger Alan Boner and Reinald Krueger
The World Bank
Washington, D.C.
Copyright © 1991
The International Bank for Reconstruction
and Development/THE WORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433,U .S.A.
All rights reserved
Manufactured in the United States of America
First printing November 1991
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ISSN: 0253-7494
Roger Alan Boner is a staff economist with the Antitrust Division, Bureau of Economics, U.S. Federal
Trade Commission, Washington, D.C., and Reinald Krueger is a research economist with the
HWWA-Institut fur Wirtschaftforschung, Hamburg, Germany.
Library of Congress Cataloging-in-Publication Data
Boner, Roger Alan, 1952-
The basics of antitrust policy: a review of ten nations and the
European Communities/ Roger Alan Boner,R einald Krueger.
p. cm.- WorldB ank technical paper, ISSN 0253-7494;n o.
160)
Includes bibliographicalr eferences.
ISBN0 -8213-1961-2
1. Antitrust law. 2. Competition. 3. Antitrust law-European
EconomicC ommunityc ountries. 4. Competition-European Economic
Commnunityco untries. I. Krueger, Reinald, 1960- . II.T itle.
m. Series.
K3850.B661 991
343'.0721-dc2O
[342.37211 91-33420
CIP
iii
- -
PREFACE
This monograph presents the fundamental concepts of competition
policy and surveys antitrustp ractice in the United States, Germany, Japan,
the United Kingdom, France, Canada, Sweden, Australia, the Republic of Korea,
Spain and the EEC. While the German and American systems have served as
models for antitrust legislationa nd administration,t hese nations have
adopted and modified particular features to suit national circumstancesa nd
objectives. By illustratinga nd comparing the strengthsa nd weaknesses of
different antitrust approaches,t he paper provides valuable information for
the design and implementationo f competitionp olicy in developing economies.
The Boner-Kruegerp iece places strong emphasis on the need for
antitrustp olicies and the institutiono f an appropriater egulatory antitrust
framework for the efficient functioningo f markets. In fact. antitrust law is
regarded as critical to promoting an open and competitivee nvironment. It
provides countriesw ith an economic code of conduct, a descriptiono f what is
fair business behavior and what is liable to penalties. In this sense,
antitrust legislationh as an educationalr ole, signalling to business that
competitive,e fficiency-enhancingc onduct is acceptable and that, conversely,
monopolizing,r ent-seekingb ehavior is not. At the core of antitrust
regulatory regimes are guidelinesm aking businessmen fully aware of what
constitute actions detrimentalt o the public interest.
Antitrust legislations hould be seen as a means of improving the
nrevailing commercial culture and developing a supRortiveb usiness environ-
ment. Establishinga n appropriatea ntitrust regulatory regime is thus
particularlyi mportant in developing or transition economiesb uilding market
mechanisms and institutions. In view of the role of antitrust law in shaping
an appropriates et of behavioral norms for business, early codificationw ould
be preferable. Drafting of laws with sufficient time before their full
implementationw ould allow economic actors to be educated and progressively
adapt their practices to the new code of conduct. This in fact is one the
important lessons from the American turn-of-the-centurye xperience. Then,
business practices often served to restrain trade and distort competition,a nd
only after a considerablet ime lag did the new and forceful pieces of anti-
trust legislationm ake a difference.
This monograph also stresses that an open trade regime is not a
substitute for effective antitrustp olicies: the two are complementary
dimensions of competitionp olicy. This proposition applies even to small open
economies. Clearly, this is the case for non-traded goods and services. Yet
even for tradable goods antitrust action might be required, if domestic firms
producing those tradables are able to exercise market power without fear of
losing sales to foreign suppliers. The extent of import penetration is an
important considerationi n assessing the intensity of import competition.
When penetration is low, not constitutinga significants hare of the total
domestic market, import response to price increases, for example, may be
limited. Similarly,w hen name recognitiono f imports is lacking, distribution
channels are weak and after sales service poor, the contributiono f imports to
the forces of competition is, at best, marginal. This is particularly the
case when effective use of a product is predicated on close assistance by the
- iv -
seller, in terms of maintenance,r epairs, and overall technicala ssistance.
In addition, numerous tradable goods sectors, due either to cost conditions or
to the policies of trading partners, exhibit oligopolisticm arket structures
that encourage anti-competitivec onduct by suppliers. An open trade regime
does not inhibit such behavior by foreign suppliers,b ut antitrust law should.
Antitrust legislation.i n both design and implementation,s hould
strive to protect the process of competitiona nd not individualc ompetitors.
In the countries surveyed here, antitrust laws have been designed and imple-
mented to protect both small producers and the competitivep rocess, but with
differing degrees of emphasis. Traditionally,t his has been a key difference
between European and American antitrust policies, with the former placing more
emphasis on ensuring the survival of small firms. These dual goals are not
always compatible,a nd in many instances, small firms can be protected only at
the sacrifice of efficiency. Thus the law should proceed cautiously.
Competitiveb ehavior, even if fairly aggressive,s hould not be restrained, as
long as no overt predatory intentions or monopolizingo bjectivesa re likely to
succeed. Competition often requires weaker rivals to restructureo perations
or exit. This Schumpeterianp rocess of "creative destruction"i s as essential
to economic progress as the entry of new actors in the market. In a world
where response flexibilitya nd resource mobility are critical for the
competitivep osition of firms, industriesa nd nations, policy-generatedo r
strategic obstacles to entry and exit should be removed to the extent pos-
sible. Certainly, neither entry nor exit should be impeded by antitrust
legislation.
The design and implementationo f antitrust legislationi s not
trivial. Required legal and economic expertise is often lacking in developing
countries. Even with appropriate resources,t he costs of regulatory failure
may be significanta nd, moreover, dominate whatever benefits are derived from
correcting perceivedm arket failures in the competitivep rocess. Regulatory
capture, informationa symmetries,a nd more mundane problems of corruption
contribute to decrease the efficiency of regulatory regimes.
Still, antitrust law is implementable,e ven in less developed
economies. A set of well-codified,s imple, transparentp er se rules (that is,
not subject to interpretation)c ould be a beginning. It would provide
deterrence through unconditionalp rohibitiono f conduct with relatively low
expenditureso f enforcementr esources. Particularlyi n the early phases of
implementation,a nd for an initial learning period, little discretionw ould be
left to the staff of the implementinga gency. Rule of reason treatment, on
the other hand, recognizesm itigating circumstancesi n judging the legality of
conduct, and is more appropriatef or types of behavior that may both harm
competitionb ut contribute to other efficiency or equity goals. This treat-
ment would be phased in over a longer period of time, as the enforcement
agency matures.
The implementationo f antitrust law needs to be supportedb y a
legal system characterizedb y enforcemento f contractualo bligations and
ownership rights. Legal reforms will likely be necessary for the implementa-
tion of antitrust laws, both to curb corruptiona nd minimize the probability
of regulatory capture. Regarding the latter, it would be helpful if civil
parties were allowed to sue individualso r corporationse ngaged in
anti-competitiveb ehavior. Such a decentralizedm ode of enforcementw ould
avoid having the potentiallyp owerful instrumento f anti-trust legislationb e
manipulated by a single agency or dominant interests. Proceedingso f the
v -
antitrust agency should be characterizedb y transparencya nd accountability,
thereby opened to public scrutiny. Deterrence of anti-competitiveb ehavior
might be accomplisheda t lower costs if both civil and criminal charges could
be pressed, particularlyi n instanceso f per se prohibition,s uch as price
fixing.
Finally, despite possible imperfectionsi n the legal system, the
antitrust agency has an importantr ole to play as an advocate for comRetition
not only with society at large, but with other Government agencies. The
educationalv alue of an antitrust legislationa nd its importancet o improving
business ethics is closely related to how forcefully the agency in charge of
its implementationp romotes competition.
This technicalp aper is part of IENIN's series on regulatory
policy and reform in industrializingc ountries. Forthcomingp apers within the
same general theme include: "The Economics of Industrial Pollution Control:
an InternationalP erspective"; "The Basics of Consumer Policy: Principles
and EnforcementP ractice"; "A Cross-CountryA nalysis of Industrial Exit"; and
"Labor Policies and RegulatoryR egimes."
Mark Dutz and Claudio Frischtak
vi -
ACKNOWLEDGEMENTS
The authors are grateful for the helpful comments of a number of
colleagues. Special thanks are due Claudio Frischtaka nd Mark Dutz of the
World Bank, Malcolm Coate and Jim Langenfeldo f the Federal Trade Commission,
Mark Frankena of Economists, Inc., and ProfessorJ anusz Ordover of New York
University. Special thanks are also due Professor Jorn Kruse, Dr. Hermann
Kallfass, and Dipl. Vw. Marisa Weinhold of the University of Hamburg and
Professor Erhard Kantzenbach of the HWWA-Institutf ur Wirtschaftforschung,
Hamburg, Germany. Opinions, errors, and omissions are the responsibilityo f
the authors alone and do not necessarilyr epresent the views of the Federal
Trade Commission or the HWWA-Institut.
- vii -
TABLE OF CONTENTS
EXECUTIVE SUMMARY .... . . . . . . .... . . . . . . . . . ix
I. INTRODUCTION .1... . . . . . . . . . . . . . . . . . . . I
II. THE CONCEPTUAL BASIS OF COMPETITION POLICY . . . . . . . . 2
The Interaction Between Market Structure, Private Conduct,
and Economic Performance . . . . . . . . . . . . . . 3
Entry .... . . . . . . . . . . . . . . . . . . . . . . 5
Barriers to Entry .... . . . . . . . . . . . . . . . . 6
Market Structure and Efficiency . . . . . . . . . . . . . 7
Market Power and Antitrust Markets . . . . . . . . . . . . 10
Market Dominance .... . . . . . . . . . . . . . . . . . 15
The Relationship Between Competition and Trade
Policies .... . . . . . . . . . . . . . . . . . . 18
III. A BRIEF DISCUSSION OF NATIONAL ANTITRUST POLICIES . . . . 22
United States . . . . . . . . . . . . . . . . . . . . . . 25
Germany . . . . . . . . . . . . . . . . . . . . . . . . . 28
Japan .... . . . . . . . . . . . . . . . . . . . . . . 30
France .... . . . . . . . . . . . . . . . . . . . . . . 32
United Kingdom .... . . . . . . . . . . . . . . . . . . 34
EEC .... . . . . . . . . . . . . . . . . . . . . . . . 37
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Australia . . . . . . . . . . . . . . . . . . . . . . . . 41
Korea .... . . . . . . . . . . . . . . . . . . . . . . 43
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . 46
IV. CONDUCT POLICIES . . . . . . . . . . . . . . . . . . . . . 48
The Legal Treatment of Horizontal Restraints . . . . . . . 50
Parallel Pricing . . . . . . . . . . . . . . . . . . . . . 53
The Legal Treatment of Vertical Restraints . . . . . . . . 56
Restraints by Dominant Firms and the Protection of
Competitors . . . . . . . . . . . . . . . . . . . . . . 63
Enforcement Standards . . . . . . . . . . . . . . . . . . 66
V. STRUCTURAL POLICIES: MERGER CONTROL AND DEMONOPOLIZATION 68
Merger Control Regulations . . . . . . . . . . . . . . . . 69
Pre-Merger Notification . . . . . . . . . . . . . . . . . 69
Merger Control Enforcement . . . . . . . . . . . . . . . . 74
Remedial Measures Under Merger Control . . . . . . . . . . 81
Demonopolization . . . . . . . . . . . . . . . . . . . . . 83
- viii -
VI. PERFORMANCE POLICIES. 85
Administrative Pricing by Antitrust Authorities . . . . . . 85
VII. ANTITRUST EXEMPTIONS .90
Exempted Cartels . . . . . . . . . . . . . . . . . . . . . 91
Domestic Competitive Effects of Cartels . . . . . . . . . 92
Cartels and Competition Policy . . . . . . . . . . . . . . 93
Cartels and Industrial Policy . . . . . . . . . . . . . . 100
Trade Unions . . . . . . . . . . . . . . . . . . . . . . . 106
VIII. INTERNATIONAL ANTITRUST ... . . . . . . . . . . . . . . 109
The Economic Rationale for International
(or Interjurisdictional) Antitrust Policy . . . . . . . 109
Jurisdictional Principles of International and
Interstate Antitrust Policy . . . . . . . . . . . . . . 115
IX. SUMMARY .118
REFERENCES .. .................... . . .. 120