Public Policy toward Dominant Firms
by on Jan.31, 2010, under Business
The passage of the Sherman act was motivated by public concern over trusts – dominant firms formed by merger in the great consolidation wave of 1895 – 1904. Many of the earliest landmark antitrust cases, in which courts gave content to section II of the Sherman act, involved dominant firms.
Courts were bound by the language of section 2, which as we have seen condemns
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations . . .
This does not condemn monopoly. Our study of strategies that create dominance shows that monopoly, within the meaning of the antitrust laws, can arise as the result of the normal process of competitive rivalry. A firm way achieves a dominant position by developing a low – cost method of production. Alternatively, it may become dominant by developing a new product, which drives rivals from the market because it better satisfies consumer needs the government might even grant the firm a legal monopoly on the new product in the firm of a patent. It would make a no sense to condemn monopoly, under laws designed to promote competition, if monopoly can sometimes result from competition. What section II prohibits is monopolization, the act of acquiring a monopoly. We now trace the cases in which courts made the distinction between legal and illegal acquisition of monopoly.
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