Dominant Firm Conduct: Lessons From Early Antitrust Enforcement

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Dominant Firm Conduct: Lessons from Early Antitrust Enforcement

Wallace P. Mullin, George Washington University

DOJ/FTC Hearings on Single Firm Conduct and Antitrust Law

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Overview

• First dominant firms arose out of Trust movement and merger to monopoly
• Comparative case studies on
  • Standard Oil
  • U.S. Steel
  • American Sugar Refining Corporation
• Lessons on dominant firm behavior and effect of antitrust prosecution and remedy.

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Standard Oil

• An aggressive competitor.
• Supreme Court found Standard Oil guilty, ordered dissolution.
• Comanorand Scherer (1995) argue that dissolution improved long term industry performance.
• Dissolution of formerly independent entities aided success of remedy, Kovacic(1999).

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United States Steel

• U.S. Steel a price umbrella for fringe firms, gradually lost market share
• Supreme Court found in favor of U.S. Steel.
• Dissolution would have lowered steel prices, Mullin, Mullin, and Mullin, 1995.
• US Steel’s acquisition by long term lease of Hill iron ore properties viewed as anti-competitive by contemporary antitrust authorities.

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U.S. Steel Enforcement Lessons

• Antitrust law protects competition, not competitors.
• Supreme Court’s 1920 acquittal seemed influenced by competitor praise.
• New contractual arrangements may have efficiency motivations.
• Hill ore lease best explained as efficiency enhancing rather than vertical foreclosure, Mullin and Mullin, 1997.

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American Sugar Refining Corporation

• Profitably engaged in predatory pricing, Genesoveand Mullin, 2006
• Department of Justice prosecution resulted in a consent decree
• Antitrust serves as a deterrent
• Government victories in American Tobacco and Standard Oil cases helped induce partial “voluntary” divestiture.