Robbins: A very basic antitrust law primer
OK, first a disclaimer and an important one; I am not an antitrust attorney. Not even close.
But I am, alas, an attorney licensed both in California and Colorado and, in my 36 years of practicing, I have been around a lot of “stuff.” Some of the “stuff” — but admittedly not much of it — has bordered on, touched upon, or kissed up against anti-trust concerns or implications. Although I am not an expert in the area of law — far from it — I have at least a business attorney’s working knowledge of its intent and application.
Forewarned then, let’s forge on.
Last week, the Big Four Techies were raked over the proverbial congressional coals. After they were raked over them, the coals apparently being sufficiently warm, the CEOs were then grilled on them until nicely crisped. Facebook’s Mark Zuckerberg, Amazon’s Jeff Bezos, Sundar Pichai of Google, and Tim Cook of Apple each had his turn to squirm beneath the gaze and dodge the volleys of a House panel as it capped its yearlong investigation of market dominance in the Technosphere.
Why these four?
Between the four of them, they take in a bit of dough, outranking the entire value of the economy of Germany. Chew on that a moment. And they number their customers in, literally, the billions. To say they have a little heft is sorta understating it. And what matters to the lawmakers is not so much the zillions that the four haul in but, more importantly, the market share and dominance they respectively and collectively exert.
Antitrust law, stated in its legal and economic singularity, is simply articulated as the word “fairness.” Is a particular behemoth squashing, quashing, limiting, or intimidating competition by its sheer size and muscle?
Protecting the little guys
What then, more specifically, is the focus and intent of antitrust law?
Antitrust law consists of laws aimed to protect consumers and to regulate how companies operate their businesses. The overarching goal is to provide a level playing field for similar — presumably smaller — businesses that play on the same pitch in a specific industry while preventing the Big Boys from gaining too much power over their competition.
Simply put, the laws attempt to stop businesses from throwing elbows in their quest to Hoover up unconscionable profits. They seek to tamp down predatory business practices and ensure fair competition in an open market. The laws are meant to check a wide range of questionable business activities, including market allocation, bid-rigging, price-fixing, and, of course, monopolies.
The theory underlying them all is that, absent regulation, consumers would get squeezed and if a blind eye were turned from the industry giants competition would be contracted as would be consumer choice. If only Chevy, or Ford or Renault owed the entire autoverse, then all you’d get would be whatever Chevy, Ford or Renault dedicated and at whatever price they set. Price and choice would both be shackled.
Why antritrust laws exist
Before we take a glimpse at the big three antirust laws, let’s consider for a moment what they are meant to constrain.
“Market allocation” is a nasty little devil. It is a scheme cooked up by two or more entities to constrain their business activities to specific geographic areas or types of certain classes of customers. Say one company operates in the Rocky Mountain region and another plies its wares in the Southwest. If they agree to not step on each other’s toes — I’ll keep mine and you keep yours — they may well have created a monopoly at least as to their respective customers.
“Bid rigging” is a related evil beast. It involves the illegal practice of colluding to determine who will win a contract. It occurs when the preordained “losing” party will purposely make a higher bid in order to allow the “winner” to succeed in snagging the deal. Presumably, there is some “you scratch my back and I scratch yours” going on here. I win this time, you come out ahead the next.
“Price Fixing” should be a familiar concept. It pops up when the price of a product or service is set by a business intentionally rather than letting market forces determine it naturally. Two or more businesses may put their corporate heads to together to fix prices to ensure profitability.
Say Ford and Chevy produce at car which — except for the Ford or Chevy badges are indistinguishable. In order to avoid a price war, Ford tells Chevy and Chevy tells Ford, “Let’s sell them for the same.” What this does is jack the price up for consumers.
Monopolies? Well you’ve played the board game, haven’t you? What it refers to is the dominance of an industry or sector by one company or firm while cutting out the competition. Think blood and guts and ruthless lack of competition.
The big three antitrust acts are the Sherman Anti-Trust Act, intended to prevent unreasonable “contract, combination or conspiracy in restraint of trade,” and “monopolization, attempted monopolization, or conspiracy or combination to monopolize;” The Federal Trade Commission Act which bans “unfair methods of competition” and “unfair or deceptive acts or practices; ” and the Clayton Antitrust Act meant to address specific practices that the Sherman Anti-Trust Act may not. These include preventing mergers and acquisitions that may “substantially lessen competition or tend to create a monopoly” and preventing discriminatory prices, services, and allowances in dealings between merchants.
At their core, antitrust laws are designed to maximize consumer welfare. And that’s what had the Big Boys squirming.