2. The arena of antitrust
2.1 The origin and the basis of antitrust
2.2 The history of antitrust in the US
2.3 The history of antitrust in the EU
2.4 Global antitrust so far
2.5 A multi-level system of global antitrust
2.6 Problems of global antitrust
3. Interest groups as the cause for continuing conflict
3.1 New Institutional Economics and antitrust
3.2 The theory of interest groups
3.3 Interest group influence on competition policy
3.4 A model explaining divergent decisions in antitrust cases
4. Comparison of the frameworks for pressure group influence in the EU and the US
4.1 Lobbying tactics in the US
4.2 Lobbying tactics in the EU
4.3 Different cultures of lobbying
4.4 Lobbying in the political system
4.5.1 Why businesses’ preference is variable
4.5.2 The case of the EU
5. Conclusion and prospects
The New Political Economics, which is a subject of the New Institutional Economics, is fundamentally concerned with how optimal policies are modified by political and institutional constraints. In the field of antitrust, the scope for institutional influences is even bigger, because the economic theory of competition is not able to suggest such an optimal policy. Hence, a lot of research has recently been done in order to account for the characteristics of competition policy from an institutional point of view. Many publications concentrate on a comparative perspective, because competition policy is not standardised globally, but often significantly different. Against the background of an increasing globalisation of business, it is not surprising that conflicts between jurisdictions emerge, when several national agencies have to decide over the same case of global relevance. This paper takes the case of the European Union and the United States as an example, when focusing on interest groups as one specific aspect of the New Political Economics. It tries to reveal, if their influence is maybe a decisive cause for the occurrence of divergent decision in antitrust.
Because only little work has so far been done in this field of research, it is primarily the objective of this analysis to chart the corresponding frameworks of both the subject of antitrust (chapter 2) and the theory of interest groups (sections 3.1, 3.2). Nevertheless, the sections 3.3 and 3.4 provide a theory of how competition policy and interest groups might be interconnected, and chapter 4 tries to reveal how divergent decisions can be explained by means of different values and cultures that determine the actions of interest groups and the ends that can be lobbied for.
2. The arena of antitrust
2.1 The origin and the basis of antitrust
Antitrust is not a clear case; it is a field of research that has not yet generated any total unanimity both in terms of desired and actual outcomes of competition policy, that is to say on a normative and positive basis. On the contrary, the crucial elements of antitrust - firms, markets and prices - and its typical vocabulary - competition, monopoly, barriers to entry, mergers, etc. - are mostly believed to form an axiomatic theory. While from the latter point of view the formulation and undertaking of antitrust policy is a very straightforward and easy business, with regard to practical evidence antitrust implies many complex issues and unresolved problems (Demsetz, 1994, p. 1). “Despite all the advances made in antitrust economics since the turn of the century, it's still as much of an art as it is a science.” (The Regional Economist, 1998)
In order to become more sensitive to the discussion about antitrust, one could approach this field of research by deploying a historical view, like Shugart (1990, p. 11). He notes that many perceive antitrust policy as having initially emerged in the US. Taking up this position, most scholars conclude that the passage of the Sherman Act9 arose because farmers in the mid-1800s found themselves in a frightening position between falling prices for their own produce on the one side and rising prices for purchased manufactured articles as well as higher railway prices on the other side. Thus, the emergence of antitrust policy can, at least partly, be seen as the result of the actions of a specific group of citizens, the farmers, who wanted to restrict the great industrial trusts and the railway companies as a major cause of their economic troubles.
Shugart (1990, p. 12) continues with explaining that there is, however, no empiric evidence for the argumentation that the farmers were actually harmed by the trusts. Instead, he allows for the role of more economic factors for the emergence of antitrust policy in the US. First, one could see antitrust as a measure to promote the public interest of economic efficiency, second it could be recognised as a means to benefit the group of lawyers and public servants, who are chosen to enforce the laws. Finally, all antitrust laws might be adopted in order to preserve a place for small business by restricting the bigger ones.
But it is questionable, if one can localise the real core of antitrust by analysing the history of just one country. Though it is true that the US can in one way be seen as the birthplace of antitrust policy, the issue was yet in the 19th century discussed by many scholars and politicians all over the world; not only in the US.
Graham/ Richardson (1997, p. 6), therefore, try to define the basis of competition policy – the term is frequently used as a synonym for antitrust policy – more broadly, not only focusing on just one country. According to them determining an institutional mix of the two states of competition and cooperation is what competition policy does. It is a social regulation that governs the market system. In this sense, it is obvious, that in any market system perfect competition is neither a feasible alternative nor a desired outcome of a policy decision. Market competitors, for example, are mostly no individual entrepreneurs but business organisations, being internally highly cooperative, and no one aims at breaking up all firms. Graham/ Richardson then criticise approaches like the one of Shugart mentioned above by clarifying that all social regulations by definition reflect history and culture. Therefore they differ between countries and are additionally constantly changing.
As mentioned earlier, (perfect) competition is not the objective of competition policy. Efficiency and fairness are rather its relevant ends, and the trade-off between them has to be taken into account. While efficiency means everywhere the same: getting the most out of the resources available, the meaning of fairness varies. Fairness could stand for the equality of opportunity as well as for the principle that loyalty should be rewarded. Examples for those kinds of differences are the Japanese auto firms that value loyalty toward and from their suppliers as only fair. US firms, on the other hand, would see this more as an unfair foreclosing of market access and therefore value it as unfair (Graham/ Richardson 1997, p. 7-8).
Although this concept of competition policy will be used and analysed more in detail in the subsequent chapters, at this point, it is most important to understand that the concept of antitrust can vary throughout the world and so can the competition policy.
It is quite difficult to outline common views that can be understood as the fundamentals of every competition policy, but the effort of Demsetz (1994, p. 4) seems to be at least as neutral and broad as possible, and it is cited here in order to provide a thread through the different existing views:
(1) Capitalistic organisation is generally quite superior to nationalization and detailed regulation.
(2) On occasion, capitalistic organisations can be improved through the use of antitrust laws.
(3) The operational guidelines of antitrust should call for abstaining from interfering with capitalistic institutions unless a convincing case can be made that significant improvement in the “general welfare” is likely to result from such interference. Correspondingly, the legal dictum of US criminal law is appropriate – “Innocent until proven guilty.” To make this case requires a combination of a showing of facts and theory that has broad appeal to experts.
In the following two sections of the paper, two jurisdictions, the US and the EU, and their antitrust regimes are analysed from an historical point of view. It is described how the two systems developed throughout time and what policy they adopt today in order to, from their individual point of view, secure the best mix of efficiency and fairness. What presented here is not a complete copy but an abstract on order to give the reader an overview of the particular competition policies.
2.2 The history of Antitrust in the US
Antitrust policy first appeared in the US at the end of the 19th century. At this time, the industrial revolution created large-scale enterprises, and market structures like monopolies and oligopolies emerged. This phenomenon was criticised by some scholars, because it seemed to be obvious that those kinds of structures could be used to create and abuse market power. Although there were different opinions on how to counteract these tendencies; the first competition law, the Sherman Act was introduced in 1890 (Neugebauer, 2003. p.7). While Demsetz notes that “…the Sherman Antitrust Act is exceedingly brief” (2004, p.1), Shugart (1990 p.55-57) comments, that its reach to prohibit conspiracies and combinations was limited. Single firm monopolies, for example, could not be prosecuted, and some of the used terms could be interpreted very widely. Furthermore, Shugart justifies an improvement of the act with the argument, that actions by a firm in another country that harmed rivals in the US could not be addressed.
Although specification resulted from the Case Law that took shape in the beginning of the 20th century when, for instance, Standard Oil was split up in 34 single entities, in 1914 two more bills were put through. The Clayton Act that enumerated four specific law violations - price discrimination, exclusive dealing and tying contracts, acquisitions of competing companies and interlocking directorates - and the Federal Trade Commission Act that constituted an agency, which should provide expertise for the control of competition, provided sharper definitions and a legal mechanism for antitrust law enforcers (Shugart, 1990 p. 55-57).
In the aftermath, the competition policy was supplemented with some minor acts like the Robinson-Patman Act in 1936, intensifying the prohibition of price discrimination and the Wheeler-Lea Amendment in 1938, which was intended to protect consumers from unfair competition and delusive actions (Neugebauer, 2003, p. 7-8).
In the seventies, a trend in the US towards a very strict competition policy was more and more visible. The absolute importance of state surveillance over markets was now a common point of view, and some main concepts evolved that still today constitute the main fundamentals of the US antitrust regime. One basis was the concept of “workable competition”; while for the code of practice the market share and the market concentration became the most relevant points. Those criteria were designed to be indicators for a constraint of competition, whereas later also some matters of fact have been declared illegal per se (Neugebauer, 2003, p. 19).
The Celler-Kefauer Antimerger Act expanded the Clayton Act in 1950 and the Antitrust Division that could charge firms was allocated under the Department of Justice and published in 1986 “Merger Guidelines” that explained when firms would be taken to court. After the final judgement in the Brown Shoe case6 the common opinion was that all kinds of horizontal and vertical mergers would be prohibited (Neugebauer, 2003, p.20).
In the late 70’s a remarkable change could be observed. Foer/ Lande (1999. p. 12) elaborate on the reformation movement, which was led by the University of Chicago. They explain that now conservative economists played a larger role both in the FTC and the Antitrust Division, so that a new consensus in favour of free competition and a laissez faire attitude emerged. The election of President Reagan symbolises the ultimate climax of a period, when it was the ultimate goal to improve the economic efficiency of the US, a fact that is also reflected in the 1882 new “Merger Guidelines” of the DOJ and the FTC. These guidelines have been expanded with the “Efficiency Defence”, which permitted to balance an enhancement in efficiency with the negative effects on competition.
The following development in the nineties strikes a new path. At the time of the Clinton presidency, the competition policy once again gains strictness, and market shares begin to play a more dominant role than before (Neugebauer, 2003, p. 30). Foer/ Lande (1999, p. 13-14) characterise the new approach as moderate but more expansive and activist. The new “post-chicago” outlook argues, that free markets are important, whereas realising the need for protecting the consumers from paying supracompetitive prices.
2.3 The history of Antitrust in the EU
The large-scale enterprises also emerged in Europe in the 19th century, but the Europeans did not take such a critical position as the Americans. When Neugebauer (2003, p. 9) notes, that the German scholars held compared to the US statements a rather liberal view referring to Adam Smith’s theory of the “invisible hand”; it fits into the argumentation of Jacquemin (1999, p. 27) when he writes, that: “…competition policy varies from country to country and over time…”. Unlike in America, trusts and monopolies have initially been accepted in Europe as normal phenomena of the market, and they have been perceived as something important for economic stability.
After World War II, the American approach began to influence the antitrust regime in Europe. For example, the German competition law, although Europe’s most strict one, did not imply such a strong political intervention as the US law. It should, on the one hand, be able to prohibit excessive concentration, but on the other hand not weaken the economy too much, because the communistic states in the east of Europe have been perceived as a serious economic threat (Neugebauer, 2003, p. 21). The first regulation of today’s EU in 1951 already contained some statements concerning the competition in specific economic sectors, which were moderate in the sense, that they conceived competition as a means to increase efficiency but also provided a possibility for state interventions to promote fairness. The articles 85 and 86 of the “Treaty Establishing the European Community”, which became effective in 19578 states among other things that
“… all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market…” (EU, 1957)
are prohibited. These articles were intended to break down trade barriers between the states, and the influence of the US is obvious, because they resemble the section 1 and 2 of the Sherman Act although being interpreted less strict (Neugebauer, 2003, p. 23). While according to the US law “[e]very person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony…” (US Congress, 1890); in Europe an abuse of a dominant position is required. That means that the market structure itself is not sufficient for state intervention. An explicit merger control did not exist at that time (Neugebauer, 2003, p. 24).
While the US policy became less strict from the seventies on, the European advancement tended in the opposite direction. The primarily washy definition of market dominance was sharpened by various judgements of the European court, and eventually, in 1990, the first European merger control, administrated by the Competition DG, was adopted (Neugebauer, 2003, p. 30-31). According to Jacquemin (1994, p. 51) the new regulation was based upon two main principles. First, the EU regime was applicable to all mergers that have a European dimension, i.e. that exceeded certain thresholds in community-wide and global sales and aimed at preventing both creation and enlargement of dominant market positions, and, second, cases should only be examined on the basis of it affects upon competition and not by considering efficiency aspects.
On January 20th 2004, the council of the European Union adopted a new regulation. Regarding to a press release of the EU, the new Article 2 of the merger regulation“…provides for intervention in relation to any merger which "would significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position ". The release adds, that “the new standard makes it clear that all mergers likely to have a significant adverse impact on competition should be prohibited, irrespective of whether the anti-competitive effects result from the creation or strengthening of a single dominant market player or of whether the effects stem from a situation of oligopoly” (EU, 2004).
Now that two particular regimes of antitrust have roughly been outlined, the focus is moved one level up to the global system of antitrust where especially in recent years a major development took place. The following section should provide a first inside in the difficulty of bringing together different systems of competition policy in their respective frameworks.
2.4 Global Antitrust so far
As Mavroidis/ Bacchetta/ Horn/ (1997, p. 1) indicate, “the case for negotiating multilateral competition rules, and the scope for any such rules, has recently become the subject of intensified debate”. But thereby one should note, that it is not only rules in the sense of formal agreements stipulating particular behaviours by law that are relevant in a global arena but also loose corporations and voluntary concessions.
At this point, neither recommendations for a global competition regime shall be made, nor shall the present situation be evaluated. Instead, the latest developments are presented in a positive approach, knowing that there is a wide-spread agreement among governments and experts that the current situation does not seem to be workable, let alone an optimal system of protection of competition in international markets (Kerber, 2003, p. 32).
The first attempts to create a international antitrust regime, as Budzinski/ Christiansen (2003, p. 12-13) reveal, date back to the first years after world war II , when the Allies brought forward the Havanna-Charta, which included a framework for a global antitrust regime for cross-border trade. But while public restraints of competition have been implemented with the GATT, the part about private restraints was abandoned in 1950 because the US congress refused to ratify it. During the next four decades, no significant developments occurred; only minor actions were taken by the OECD and the UNCTAD. Neugebauer (2002, p. 14) adds, that in order to handle the frictions between the different legislations at least some bilateral agreements have been made.
Today’s development is characterized by an inconsistency between the attitudes of the United States and the European Union. While the EU favours a solution using the WTO as the natural and best institution for the implementation of an International Competition Policy Agreement (ICPA), the US propose the “Global Competition Initiative” as an alternative, being more concentrated on dialog and cooperation and not having the intention of the EU, which aims at establishing concrete legal rules to ensure a minimum standard of competition law in every country (Budzinski/ Christiansen, 2003, p. 13-17).
The European Union did not abandon the WTO plan, but ,in order to make at least a progress in global antitrust, it founded the International Competition Network (ICN) in October 2001 together with the competition agencies of America and Canada (Neugebauer, 2002, p. 14).
“The International Competition Network (ICN)… facilitates procedural and substantive convergence in antitrust enforcement through a results-oriented agenda and informal, project-driven organization…By enhancing convergence and cooperation, the ICN promotes more efficient, effective antitrust enforcement worldwide.” (ICN, 2003)
In addition, Budzinski/ Christiansen (2003, p. 17) explain, that the main principle of the ICN is that of voluntariness and informal mechanisms of enforcement.
One of the most comprehensive bilateral agreements is that between the EU and the US, which motivates the exchange of information, mutual notification and consultation. The included, 1998 reinforced, positive-comity-principle claims, that an agency should abstain from initiating antitrust activities on the territory of another nation and instead request assistance from the particular authority (Neugebauer, 2002, p. 15).
Although with the ICN and the bilateral agreements there are some efforts to establish a global level of antitrust, mainly, these only aim at cooperation. Attempts to initiate a convergence of the different national regimes have also been made, partly generating notable changes. But anyway, divergent decisions can always occur, because there is nearly no binding agreement in regard to legal rules and processes.
The present global antitrust setup, furthermore, facilitates the emergence of conflicts, since the competencies of different competition laws are overlapping. The above mentioned initiatives, such as the ICN or the bilateral agreements, do not seem to be the remedy for the conflicts. The initial point of this analysis is thus a large scope of national competition laws with differences in the substantive and procedural rules (Kerber, 2003, p. 5).
What was not mentioned here is, that within the EU, of course, a considerable unification and centralization of competition policy took place in recent years, so that it is adequate to treat this entity as a single state in the following. Nevertheless, inside the EU another conflict is going on; one between the single states and the overarching political institution.
2.5 A multi-level system of global antitrust
It has already been suggested, that the different antitrust regimes are overlapping in matters of their spheres of influence, and that this setup causes conflict, while previous efforts to establish a global cooperation and a process of convergence are not sufficient to solve the problem.
Budzinski/ Christiansen (2003, p. 1) explain for this purpose, that the emergence of a global antitrust regime did not occur as a process of substitution, where national regimes are replaced by policies on a global level, but as a process of supplementation. What arises is therefore a complex antitrust regime that generates competition policy on multiple jurisdictional levels.