Foundation Symposium no. 194), Wiley, Chichester, UK,pp. 76–85

Stattin H, Magnusson D 1995 Onset of official delinquency: Itsco-occurrence in time with educational, behavioural, andinterpersonal problems. British Journal of Criminology, 35:417–49

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Tremblay R E, Japel C, Pe! russe D, McDuff P, Boivin M,Zoccolillo M, Montplaisir J 1999 The search for the age of‘onset’ of physical aggression: Rousseau and Bandura re-visited. Criminal Beha�ior and Mental Health 9: 8–23

Zoccolillo M 1993 Gender and the development of conductdisorder. De�elopment and Psychopathology 5: 65–78

L. Pulkkinen

Antitrust Policy

The term antitrust, which grew out of the US trust-busting policies of the late nineteenth century, de-veloped over the twentieth century to connote a broadarray of policies that affect competition. Whetherapplied through US, European, or other nationalcompetition laws, antitrust has come to representan important competition policy instrument thatunderlies many countries’ public policies towardbusiness. As a set of instruments whose goal is to makemarkets operate more competitively, antitrust oftencomes into direct conflict with regulatory policies,including forms of price and output controls, anti-dumping laws, access limitations, and protectionistindustrial policies.

Because its primary normative goal has been seen bymost to be economic efficiency, it should not besurprising that antitrust analysis relies heavily on theeconomics of industrial organization. But, other socialsciences also contribute significantly to our under-standing of antitrust. Analyses of the development ofantitrust policy are in part historical in nature, andpositive studies of the evolution of antitrust law(including analyses of lobbying and bureaucracy)often rely heavily on rational choice models of thepolitics of antitrust enforcement.

The relevance of other disciplines notwithstanding,there is widespread agreement about many of theimportant antitrust tradeoffs. Indeed, courts in theUS have widely adopted economic analysis as thetheoretical foundation for evaluating antitrust con-cerns. Interestingly, however, antitrust statutes inthe European Union also place heavy emphasis onthe role of economics. Indeed, a hypothetical conver-sation with a lawyer or economist at a US compe-tition authority (the Antitrust Division of theDepartment of Justice or the Federal Trade Com-

mission) or the European Union (The Competi-tion Directorate) would be indistinguishable at firstsight.

While this article provides a view of antitrustprimarily from the perspective of US policy, the reviewthat follows illustrates a theme that has worldwideapplicability. As our understanding of antitrusteconomics has grown throughout the past century,antitrust enforcement policies have also improved,albeit sometimes with a significant lag. In this surveythe following are highlighted: (a) the early anti-bigbusiness period in the US, in which the structure ofindustry was paramount; (b) the period in whichperformance as well as structure was given significantweight, and there was a systematic attempt to balancethe efficiency gains from concentration with theinefficiencies associated with possible anti-competitivebehavior; (c) the most recent period, which includesthe growth of high technology and network industries,in which behavior theories have been given particularemphasis.

1. The Antitrust Laws of the US

In the USA, as in most other countries, antitrustpolicies are codified in law and enforced by the judicialbranch. Public cases may be brought under Federallaw by the Antitrust Division of the Department ofJustice, by the Federal Trade Commission, and}or byeach of the 50-state attorneys-general. (The stateattorneys-general may also bring cases under statelaw.) Further, there is a broad range of possibilities forprivate enforcement of the antitrust laws, which playsa particularly significant role in the USA.

1.1 The Sherman Act

Antitrust first became effective in the US near the endof the nineteenth century. Underlying the antitrustmovement was the significant consolidation of in-dustry that followed the Civil War. Following the war,large trusts emerged in industries such as railroads,petroleum, sugar, steel, and cotton. Concerns aboutthe growth and abusive conduct of these combinationsgenerated support for legislation that would restricttheir power. The first antitrust law in the USA—theSherman Act—was promulgated in 1890. Section 1 ofthe Act prohibits: ‘Every contract, combination in theform of trust of otherwise, or conspiracy, in restraintof trade or commerce among the several States, orwith foreign nations.’

Section 2 of the Sherman Act states that it is illegalfor any person to ‘…monopolize, or attempt tomonopolize, or combine or conspire with any otherperson or persons, to monopolize any part of the tradeor commerce among the several States, or with foreignnations….’ These two sections of the Act contain the

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two central key principles of modern antitrust policythroughout the world—conduct that restrains tradeand conduct that creates or maintains a monopoly—isdeemed to be anticompetitive.

1.2 The Clayton Act

Early in the twentieth century it became apparent thatthe Sherman Act did not adequately address com-binations, such as mergers, that were likely to createunacceptably high levels of market power. In 1914Congress passed the Clayton Act, which identifiedspecific types of conduct that were believed to threatencompetition. The Clayton Act also made illegal con-duct whose effect ‘may be to substantially lessencompetition or tend to create a monopoly in any lineof commerce.’ Section 7 of the Clayton Act is theprincipal statute for governing merger activity—inprinciple Sect. 7 asks whether the increased con-centration will harm actual and}or potential com-petition.

Other sections of the Clayton Act address particulartypes of conduct. Section 2, which was amended andreplaced by Sect. 1 of the Robinson-Patman Act in1936, prohibits price discrimination between differentpurchasers of the same type and quality of a com-modity, except when such price differences are cost-justified, or if the lower price is necessary to meetcompetition.

Section 3 of the Clayton Act specifically prohibitscertain agreements in which a product is sold onlyunder the condition that the purchaser will not deal inthe goods of a competitor. This section has been usedto challenge exclusive dealing arrangements (e.g., adistributor that is obligated to sell only the products ofa particular manufacturer) and ‘tied’ sales (e.g., thesale of one product is conditioned on the buyer’spurchase of another product from the same supplier).The Act does not prohibit all such arrangements—only those whose effect would be likely to substantiallylessen competition in a particular line of commerce.

1.3 The Federal Trade Commission Act

The US is nearly unique among competition-lawcountries in having two enforcement agencies. In partto counter the power granted to the Executive branchunder the Sherman Act, Congress created the FederalTrade Commission (FTC) in 1914. Section 5 of theFederal Trade Commission Act, which enables theFTC to challenge ‘unfair’ competition, can be appliedto consumer protection as well as mergers. In addition,the FTC has the power to enforce the Clayton Act andthe Robinson-Patman Act. While the agencies actindependently of one another, the FTC and the DOJ’senforcement activities have generally been consistentwith one another during most of enforcement history.

What then are the differences between the twoenforcement agencies? A simple answer is that the

FTC is responsible for consumer protection issues,whereas criminal violations of Sect. 1 of the ShermanAct (e.g., price fixing and market division) are theresponsibility of the Antitrust Division. It is alsoimportant to note that most enforcement activities,when successful, lead to injunctive remedies, where theparty that has violated the law is required to cease theharmful activity. Exceptions are the criminal fines thatare assessed when Sect. 1 of the Sherman Act iscriminally violated, and fines that are assessed incertain consumer protection cases. Damages are rarelyassessed by the federal agencies, otherwise, althoughin principle there can be exceptions (e.g., when the USrepresents the class of government employees).

2. The Goals of Antitrust

Despite considerable economic change in the economyover the twentieth century, the federal antitrust lawshave continued to have wide applicability in partbecause their language was quite vague and flexible.This has led, quite naturally, to extensive historicalstudy of the legislative history and substantial debateabout congressional intent, especially where theSherman Act is concerned. Some scholars have arguedthat the Sherman Act was directed almost entirelytowards the achievement of allocative efficiency (e.g.,Bork 1966). Others have taken the view that Congressand the courts have expressed other values, rangingfrom a broad concern for fairness, to the protection ofspecific interest groups, or more simply to the welfareof consumers writ large (e.g., Schwartz 1979, Stigler1985).

The debate concerning the goals of the antitrustlaws continues today. The enforcement agencies, forexample, evaluate mergers from both consumer wel-fare and total welfare (consumer plus business) pointsof view, in part because the courts are not clear as towhich is the appropriate standard under the ClaytonAct. While it seems clear that the Sherman Act wasintended in part to protect consumers against theinefficiencies of monopolies and cartels, it is significantthat at the time of the passage of the Act manyeconomists were in opposition because they believedthat large business entities would be more efficient.Whatever the goals of the Sherman Act, it is notablethat a merger wave (1895–1905) soon followed thepassage of the Act. It may be that outlawing varioustypes of coordinated behavior (Sect. 1) may haveencouraged legal coordination through merger.

3. Historical De�elopments

Because antitrust focuses on the protection of com-petitive markets, it was natural to suspect othernonstandard organizational forms as potentially anti-competitive. During the early part of the 1900s, mostantitrust enforcement was public, and it was directedagainst cartels and trusts. Early successes included

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convictions against the Standard Oil Company(Standard Oil �s. US) and the tobacco trust formonopolization in 1911.

It is important to note, however, that the ShermanAct does not prohibit all restraints of trade—onlythose restraints that are unreasonable. The distinctionbetween reasonable and unreasonable restraints re-mains a subject of debate today. It is significant,however, that the distinction between per se analysis(in which a practice is deemed illegal on its face) andrule of reason (in which one trades off the pro-competitive and anticompetitive aspects of a practice)was made during this early period, and it remainsimportant today.

By its nature, a per se rule creates a rebuttalpresumption of illegality once an appropriate set offacts is found. Per se rules have the advantage thatthey provide clear signals and involve minimal en-forcement costs. Yet actual firm behavior in varyingmarket contexts generates exceptions that call for in-depth analyses. It is not surprising, therefore, that theper se rule is the exception to the rule-of-reason norm.

An example of the application of rule of reason isprice discrimination. Viewed as an exercise of mono-poly power, the practice was seen as suspect. Indeed,the Robinson-Patman Act presumes that with barriersto entry, price discrimination marks a deviation fromthe competitive ideal that was presumed to havemonopoly purpose and effect. Efficiency justificationsfor price discrimination and other ‘restrictive prac-tices’—promoting investment, better allocating scarceresources, and economizing on transaction costs—were overlooked during the early enforcement period.Confusion also arose between the goal of protectingcompetition and the practice of protecting com-petitors. At the beginning of the twenty-first century,however, efficiency arguments are clearly pertinent tothe evaluation of Robinson-Patman claims.

There is no doubt that antitrust enforcement isdifficult, even with the more sophisticated tools ofindustrial organization that are available today. TheSherman Act does not offer precise guidance tothe courts in identifying illegal conduct. In both theClayton Act and the Sherman Act, Congress haschosen not to enumerate the particular types ofconduct that would violate the antitrust laws. Instead,Congress chose to state general principles, such asattempts to monopolize, and contracts or com-binations that restrain trade, without elaborating onwhat actually qualifies for the illegal behavior. It wasleft to the courts to ascertain the intent of the antitruststatutes and to distinguish conduct that harms com-petition from conduct that does not.

In a significant early case, Board of Trade of the Cityof Chicago �s. USA (1918), the Supreme Courtreiterated the reasonableness standard for evaluatingrestraints of’ trade. The Court concluded that ‘Thetrue test of legality is whether the restraint imposed issuch as merely regulates and perhaps thereby

promotes competition or whether it is such as maysuppress or even destroy competition.’ In this and insubsequent cases, the court failed to provide a clearstatement of when and how a rule of reason analysisshould be applied.

Antitrust enforcement agencies and the courtscontinue to debate the mode of analysis that is mostappropriate in particular market contexts and whenparticular practices are at issue. Both courts andagencies deem it appropriate to undertake some formof ‘quick-look analysis,’ one which goes beyond theapplication of a per se rule, but which falls short of afull rule of reason inquiry (see California DentalAssociation �s. FTC 1999, Melamed 1998). Per se rulesare applied to certain horizontal restraints, involvingtwo or more firms operating in the same line ofbusiness. Quick-look and rule of reason analyses aremore prevalent when the restraints at issue are vertical(involving two or more related lines of business, e.g., amanufacturer and a supplier).

Quick-look and more complete rule-of-reasonanalyses have relied on a number of basic principles.First and foremost is the market power screen. Courtshave appreciated that antitrust injury necessitates theexercise of market power. Antitrust analysis typicallybegins with the measurement of market share pos-sessed by firms alleged to engage in anticompetitiveconduct. As many scholars have noted (e.g., Stigler1964), in the absence of collusion, the exercise ofmarket power in unconcentrated markets is unlikely.Market concentration is often seen as a necessary butnot sufficient condition for the exercise of’ marketpower, since ease of entry, and demand and supplysubstitutability can limit the ability of firms to raiseprices even in highly concentrated markets (e.g.,Baumol et al. 1982). But, market concentration—market power screens are not essential; witness theSupreme Court’s opinion in FTC �s. Indiana Federal ofDentists (1986).

Although courts have long recognized the import-ance of market power to conclusions about antitrustinjury, the standards by which they adjudicate anti-trust cases, and their willingness to apply sophisticatedeconomic analysis, has varied significantly over time.Antitrust policy once treated any deviation from thecompetitive ideal as having anticompetitive purposeand effect. Vertical arrangements were particularlysuspicious if the parties agreed to restraints thatlimited reliance on market prices. Over time, however,the critique of such arrangements diminished aseconomists began to appreciate the importance ofefficiencies associated with a range of contractualpractices.

3.1 The Structure-conduct Inter�entionist Period

During the 1950s and the 1960s the normative analysisof antitrust was dominated by the work of Joe Bain on

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barriers to entry, industry structure, and oligopoly(Bain 1968). Bain’s relatively interventionist philos-ophy was based on the view that scale economies werenot important in many markets, that barriers to entryare often high and can be manipulated by dominantincumbent firms, and that supracompetitive mon-opolistic pricing is relatively prevalent. This traditionheld, not surprisingly, that nonstandard and unfam-iliar practices should be approached with skepticism.During this era, antitrust enforcers often concludedthat restraints which limited the number of com-petitors in a market necessarily raised prices, and thatthe courts could protect anticompetitive conduct byappropriate rule making.

In this early structure-conduct era, industrialorganization economists tended to see firms as shapedby their technology. Practices, such as joint ventures,that reshaped the boundaries of the firm (e.g., jointventures) were often seen as suspect. Significantemphasis was placed on the presence or absence ofbarriers to entry, which provided the impetus for avery tight market power screen.

Because the government was often seen as benign, itwas not surprising that antitrust looked critically atmergers and acquisitions. Moreover, absent a broadertheory that encompassed a variety of business relation-ships among firms, it is not surprising that the SupremeCourt often supported government arguments withoutseriously evaluating the tradeoffs involved (e.g., USA�s. Von’s Grocery Co. 1966).

Economies of scale are illustrative. That they cancreate a barrier to entry was emphasized under Bain’spoint of view, whereas the clear benefits that scaleeconomies provide were given little recognition. Forexample, the Supreme Court argued that ‘possibleeconomies cannot be used as a defense to illegality’(Federal Trade Commission �s. Procter & Gamble Co.1967).

Government hostility during this period also ap-plied to markets with differentiated products. In USA�s. Arnold, Schwinn & Co. (1907), for example, thegovernment was critical of franchise restrictions thatsupported product differentiation because therestrictions were perceived to foster the purchase ofinferior products at higher than competitive prices.The possibility that exclusive dealing was pro-competitive was not given serious consideration dur-ing the 1950s and 1960s.

The failure of antitrust enforcers to appreciate thebenefits of discriminatory contractual practices wasalso evident in the early enforcement of the Robinson-Patman Act. Through the 1960s, the Act wasvigorously enforced. Legitimate reasons for discrimi-natory pricing were very narrow (e.g., economies ofscale in production or distribution). Since the mid-1960s, however, there has been a significant shift.Fears that the Act might discourage procompetitiveprice discrimination have led to less aggressive en-forcement by the FTC.

The 1960s and 1970s marked a period of substantialempirical analysis in antitrust, motivated by structuralconsiderations. The literature on the correlation be-tween profit rates and industry structure initiallyshowed a weak positive correlation, suggesting thathigh concentration was likely to be the source of anti-competitive firm behavior. However, this interpret-ation was hotly disputed. If behavior that is describedas a barrier to entry also served legitimate purposes,what can one conclude even if there is a positivecorrelation between profitability and concentration?The challenge to this line of empirical work is typifiedby the debate between Demsetz (1974) and Weiss(1974). Demsetz argued that concentration was aconsequence of economies of scale and the growth ofmore efficient firms—in effect the early empirical worksuffered from problems of simultaneity. If concen-trated markets led to higher industry profits, theseprofits were the consequence and not the cause of thesuperior efficiency of large firms and they consequentlyare consistent with competitive behavior. Today, theseearly studies are viewed critically, as having omittedvariables that account for research and development,advertising, and economies of scale. It is noteworthythat the observed positive correlation reflected bothmarket power and efficiency, with the balance varyingon a case-by-case basis.

3.2 The Influence of the Chicago School

All of the assumptions that underlie the tradition ofthe 1950s and 1960s came under increasing criticismduring the 1970s, led in part by the influence of theChicago School. While the views of its proponents(e.g., Posner 1979, Easterbrook 1984) are themselvesboth rich and varied, they have come to be typified asincluding the following: (a) A belief that the allocativeefficiencies associated with economies of scale andscope are of paramount importance; (b) A belief thatmost markets are competitive, even if they contain arelatively few number of firms. Accordingly, even ifprice competition is reduced, other nonprice forms ofcompetition will fill the gap; (c) A view that mon-opolies will not last forever. Accordingly, the highprofits earned by dominant monopolistic firms willattract new entry that in most cases will replace themonopolist or at least erode its position of dominance;(d) A view that most barriers to entry, except perhapsthose created by government, are not nearly assignificant as once thought; (e) A belief that monop-olistic firms have no incentive to facilitate or leveragetheir monopoly power in vertically related markets(the ‘single monopoly rent’ theory); (f) A view thatmost business organizations maximize profits; firmsthat do not will not survive over time; (g) A belief thateven when markets generate anticompetitive out-comes, government intervention, which is itself less

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than perfect, is appropriate only when it improveseconomic efficiency.

The period of the late 1960s and 1970s not onlymarked a significant influence by the Chicago School;it also saw an upgrading of the role of economists inthe antitrust enforcement agencies. The increased rolecontinued through the end of the twentieth century inthe US, as it did in the European Union. For example,two economists play decision-making roles at theDepartment of Justice—one a Deputy for Economicsand the other a Director in charge of EconomicEnforcement.

Because of the influence of the Chicago School,nonstandard contractual practices that were oncedenounced as anticompetitive and without a validpurposewere often seen as serving legitimate economicpurposes. Not surprisingly, for example, the per serule limiting exclusive distribution arrangements inSchwinn was struck down by the US Supreme Court inGTE Syl�ania, Inc. �s. Continental TV, Inc. (1977).Although the US DOJ–FTC Merger Guidelines doesnot explicitly spell out a tradeoff analysis of efficienciesand competitive effects, accounting for the economicbenefits of a merger is now standard practice. Antitrustenforcement is alert to tradeoffs, and less ready tocondemn conditions for which there is no obvioussuperior alternative.

3.3 The Post-Chicago School Analyses of StrategicEconomic Beha�ior

In the 1970s and continuing through the 1990s newindustrial organization tools, especially those usinggame-theoretic reasoning came into prominence.These tools allow economists to examine the ways inwhich established firms behave strategically in relationto their actual and potential rivals. The distinctionbetween credible and noncredible threats, which wasabsent from the early entry barrier literature, has beenimportant to an assessment of the ability of establishedfirms to exclude competitors and to the implications ofexclusionary conduct for economic welfare (e.g., Dixit1979). These theories also illuminated a broader scopefor predatory pricing and predatory behavior. Pre-viously scholars such as Robert Bork (1978) hadargued that predatory pricing imposes high costs onthe alleged predator and is unlikely to be profitable inall but extraordinary situations. Developments in theanalysis of strategic behavior provide a richer per-spective on the scope for such conduct. Thus, nonpricecompetitive strategies that ‘raise rivals’ costs’(Krattenmaker and Salop 1986, Ordover et al. 1990)are now thought to be quite prevalent. Indeed, modelsof dynamic strategic behavior highlight the ability andopportunity for firms to engage in coordinated actionsand for firms to profit from conduct that excludesequally efficient rivals (e.g., Kreps and Wilson 1982,Milgrom and Roberts 1982).

The implications of the various models of strategicbehavior remain hotly debated. On the more skepticalside is Franklin Fisher, who stresses that while thesenew developments offer insights, they are insufficientlycomplete to provide firm conclusions or to allow us tomeasure what will happen in particular cases (Fisher1989). A more optimistic view is given by Shapiro(1989) who believes that we can now analyze a muchbroader range of business competitive strategies thanbefore. We also know much more about what to lookfor when we are studying areas such as investment inphysical and intangible assets, the strategic control ofinformation, network competition and standard-ization, and the competitive effects of mergers.

The analysis of strategic behavior has emphasizedthe potential for exercising market power, often to thedetriment of consumers. At the same time, otheranalyses have stressed that there are gains toconsumers from coordinated behavior among firmswith market power. Thus, Coase (1937) argued thatmarket forces were only one means to organize marketactivities, and that nonmarket organizations couldprovide a viable alternative. Further, Williamson(1985) developed the theory of nonmarket org-anization to show that contractual restraints canprovide improved incentives for investments in humanand physical assets that enhance the gains from trade.This transaction cost approach helps to provide afoundation for understanding the efficiency benefits ofcontractual restraints in vertical relationships.

Coupled with the game-theoretic analyses of firmbehavior in imperfect markets has been the applicationof modern empirical methods for the analysis of firmpractices. These newer methods allow for the moreprecise measurement of market power, and theyindicate generally that market power is relativelycommon, even in markets without dominant firms(Baker and Rubinfeld 1999).

3.4 The Public Choice Approach

Today, a balanced normative approach to antitrustwould involve reflections on the broad set ofefficiencies associated with various organizationalforms and contractual relations, as well as the possi-bilities for anticompetitive strategic behavior inmarkets with or without dominant firms. A positive(descriptive) approach focuses on the relationshipbetween market structure and the politics of theinterest groups that are affected by that structure.

The theory of public choice has been used as thebasis for limiting competitor standing to bring anti-trust suits. In support is the argument thatcompetitors’ interests deviate from the public interestbecause competitors view efficiencies associated withalleged exclusionary practices to be harmful, andtherefore are not in a position to distinguish efficientfrom inefficient practices. On the other hand,

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competitors are often the most knowledgeable ad-vocates, and are likely to know more about thesocially harmful effects of exclusionary practices longbefore consumers do. The debate over standing to suehas surfaced with respect to indirect purchaser suits(e.g., IllinoisBrickCo. �s. Illinois1977) andwith respectto predatory pricing (Brooke Group Ltd. �s. Brown &Williamson Corp. 1993).

4. High Technology and Dynamic NetworkIndustries

In the latter part of the twentieth century rapid changesin technology have altered the nature of competitionin many markets in ways that would most likely havesurprised the antitrust reformers of the late nineteenthcentury. The early debates centered on scale—did thebenefits of economies of scale in production outweighthe associated increase in market power? In manydynamic high technology industries today, demand,rather than supply is often the source of substantialconsumer benefits and significant market power.Economies of scale on the demand side arise inindustries such as computers and telecommunicationsbecause of the presence of network effects, wherebyeach individual’s demand for a product is positivelyrelated to the usage of the product (and comple-mentary products) by other individuals. Networkeffects apply to communications networks (whereconsumers value a large network of users with whomto communicate, such as compatible telephone sys-tems and compatible fax machines), and they apply tovirtual networks or hardware–software networks(where there is not necessarily any communicationbetween users).

In industries in which network effects are significant,a host of issues challenge our traditional views ofantitrust. Because network industries are often charac-terized by large sunk costs and very low marginalcosts, there is a substantial likelihood that a successfulfirm will come to dominate a market and to persist inthat dominance for a significant period of time.Indeed, while there is no assurance that a singlestandard will arise in network industries, it is never-theless often the case that users will gravitate towardusing compatible products. This combination of econ-omic factors makes it possible for firms to adopt priceand nonprice policies that exclude competition andeffectively raise prices significantly above what theywould be were there more competition in the market(Rubinfeld 1998).

A host of hotly debated antitrust policy issues areraised by the increasing importance of dynamic net-work industries. Whatever view one holds, there islittle doubt that the antitrust enforcement stakes areraised. On one hand, because the path of innovationtoday will significantly affect future product quality

and price, the potential benefits of enforcement arehuge. This perspective clearly motivated the Depart-ment of Justice and twenty states when they chose tosue Microsoft for a variety of antitrust violations in1998 (US �s. Microsoft 1998). On the other hand,because the path of innovation is highly uncertain andtechnology is rapidly changing, barriers to entry thatseem great today could disappear tomorrow, and thepotential costs of enforcement are large as well. Thethreat of potential entry by innovative firms has beena significant part of Microsoft’s defense in the De-partment of Justice case.

5. Standard Setting

In network industries competitive problems may arisein the competition to develop market standards.Dominant firms may have an incentive to adoptcompetitive strategies that support a single standardby preventing the products of rivals from achievingcompatibility. Indeed, when the dominant firm’sproduct becomes the standard for the industry, firmsthat are developing alternative standards may find itdifficult to compete effectively (Farrell and Katz 1998).Alternatively, firms might collude to affect the out-come of the standard-setting (price-setting) process.Such collusion can be difficult to detect because firmsoften have pro-competitive reasons for cooperating inthe race to develop new technology. Indeed, firmsoften possess assets and skills that can make col-laboration in developing a market standard an efficientarrangement. An example is the pooling of technologyrelated to video and audio streaming on the Internet.In its business review letter of the MPEG-II patentpooling agreement, the Antitrust Division of theDepartment of Justice spelled out a set of conditionsunder which the pooling of assets would be deemed tobe pro-competitive. Where and how to draw the linebetween procompetitive sharing of assets of skills andother anticompetitive activities that will discouragecompetitors in the battle for the next generationstandard remains a highly significant antitrust issue.

As a general rule, one should expect that sufficientcompetition will exist to develop a new product ormarket standard whenever more than a few inde-pendent entities exist that can compete to develop theproduct or standard. This rule of thumb is consistentwith case law and conclusions in guidelines publishedby the US antitrust authorities. For example, theDOJ}FTC Antitrust Guidelines for the Licensing ofIntellectual Property conclude that mergers or otherarrangements among actual or potential competitorsare unlikely to have an adverse effect on competitionin research and development if more than fourindependent entities have the capability and incentiveto engage in similar R&D activity (DOJ}FTC 1995).Similarly, the 1984 DOJ}FTC Merger Guidelines

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(revised in 1992) conclude that mergers among po-tential competitors are unlikely to raise antitrustconcerns if there are more than a few other potentialentrants that are similarly situated.

5.1 Le�eraging

Leveraging occurs when a firm uses its advantage fromoperating in one market to gain an advantage in sellinginto one or more other, generally related markets.Leveraging by dominant firms in network industriesmay take place for a variety of reasons that can be pro-competitive or anticompetitive, depending on thecircumstances. The challenge for antitrust policy is todistinguish between the two. On one hand, leveragingcan be seen as a form of vertical integration, in whicha firm may improve its distribution system, economizeon information, and}or improve the quality ofits products. Leveraging, however, can be anti-competitive if its serves as a mechanism by which adominant firm is able to raise its rivals’ costs ofcompeting in the marketplace.

Leveraging can be accomplished by a variety ofpractices (e.g., tying, bundling, exclusive dealing), eachof which may have anticompetitive or procompetitiveaspects, or a combination of the two. For example,with tying, a firm conditions the purchase (or license)of one product—the tied product—on the purchase(or license) of another product—the tying product. Afirm might choose a tying arrangement for pro-competitive reasons, including cost savings and qualitycontrol. Suppose, for example, that a dominant firmoffers to license its dominant technology only to thosefirms that agree to also license that firm’s comp-lementary product, and suppose that the complemen-tary product builds on the firm’s next generationtechnology. Such a tying arrangement could allow thedominant firm to create a new installed base of users ofits next generation technology in a manner that wouldeffectively foreclose the opportunities of competingfirms to offer their products in the battle for the nextgeneration technology (Farrell and Saloner 1986).

6. International Antitrust

The emergence of a global marketplace raises signifi-cant antitrust policy issues. On one hand, free tradeand the opening of markets makes it less likely thatmergers will significantly decrease competition, andindeed, creates greater opportunities for merging orcooperating firms to generate substantial efficiencies.On the other hand, international price-fixing agree-ments are more difficult for US or other domesticenforcement agencies to police, since success oftenrequires some degree of cooperation with foreigngovernments or international organizations. In the1990s we saw a significant increase in the prosecution

of international price-fixing conspiracies. Indeed, in1998, the Department of Justice collected over $1billion in criminal fines, the bulk of which arose fromthe investigation of a conspiracy involving the vitaminindustry.

The internationalization of antitrust raises a host ofdifficult jurisdictional and implementation problemsfor all antitrust enforcement countries. One can get asense of the enormous difficulties involved by lookingat the problems from the perspective of the US. TheSherman Act clearly applies to all conduct, which hasa substantial effect within the US. However, crucialevidence or culpable individuals or firms may belocated outside the US. As a result, it is imperative forUS antitrust authorities to coordinate their activitieswith authorities abroad. This is accomplished in partthrough mutual assistance agreements, as, forexample, in the agreement between the US andAustralia under the International Enforcement As-sistance Act. It is also accomplished through informal‘positive comity’ arrangements, whereby if onecountry believes that its firms are being excluded fromanother’s markets, it will conduct a preliminaryanalysis and then refer the matter to the foreignantitrust authority for further investigation, and, ifappropriate, prosecution. (Such an agreement wasreached with the EU in 1991.) Further, in 1998, theOrganization for Economic Cooperation and De-velopment formally recommended that its membercountries cooperate in enforcing laws against inter-national cartels. What role, if any, the World TradeOrganization will play in encouraging cooperation orresolving antitrust disputes remains an open questiontoday.

7. Conclusions

Antitrust policy has undergone incredible change overthe twentieth century. As the views about the nature ofmarkets and arrangements among firms held byeconomists and others have changed, so has antitrust.The early focus was on the possible anticompetitiveeffects of mergers and other horizontal arrangementsamong firms. The primary source of market powerwas the presence of scale economies in production.However, vertical arrangements receive significantcritical treatment, and the sources of market power areseen as coming from the demand side as well as thesupply side. Further, a wide arrange of contractualpractices are now judged as creating substantialefficiencies, albeit with the risk that market power willbe used for exclusionary purposes. Finally, significantchanges in international competition, resulting fromfree trade and the communication and informationrevolution, have reinforced the importance ofreshaping antitrust to meet the needs of the twenty-first century. Significant new antitrust challenges lieahead. Whatever those challenges may be, we can

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expect that industrial organization economics andantitrust policy will be sufficiently flexible and cre-atively to respond appropriately.

8. Statutes

Clayton Act, 38 Stat. 730 (1914), as amended, 15USCA §§12-27 (1977).

Federal Trade Commission Act, 38 Stat. 717 (1914),as amended, 15 USCA §§41-58 (1977).

Robinson-Patman Act, 49 Stat. 1526 (1936), 15USCA §13 (1977).

Sherman Act, 26 Stat. 209 (1890), as amended, 15USCA §§1-7 (1977).

9. Cases

Board of Trade of the City of Chicago �s. USA, 246US 231 (1918) (see Sect. 3).

Brooke Group Ltd. �s. Brown & Williamson TobaccoCorp., 509 US 209, 113 S. Ct. 2578 (1993) (see Sect3.4).

CaliforniaDentalAssociation�s.FTC, 119S.Ct.1604(1999) (see Sect. 3).

Federal Trade Commission �s. Indiana Association ofDentists, 476 US 447 (1986) (see Sect. 3).

Federal Trade Commission �s. Procter & Gamble Co,Inc., 386 US 568, 574 (1967) (see Sect. 3.1).

GTE Syl�ania, Inc. Continental TV, Inc., 433 US 36,45 (1977) (see Sect. 3.2).

Illinois Brick Co. �s. Illinois, 431 US 720, 97 St. Ct.2061 (1977) (see Sect. 3.4).

Standard Oil Co. �s. United States, 221 US 1 (1911)(see Sect. 3).

USA �s. Arnold, Schwinn & Co., 388 US 365 (1907)(see Sect. 3.1).

USA �s. Microsoft, Civil Action, 98-1232 (1998) (seeSect. 4).

USA �s. Von’s Grocery Co., 384 US 270, 301 (1966)(see Sect. 3.1).

See also: Business History; Business Law; Firm Beha-vior; Policy Process: Business Participation; Regu-lation and Administration; Regulation, EconomicTheory of; Regulation: Empirical Analysis; Regu-lation Theory in Geography; Regulatory Agencies

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D. L. Rubinfeld

Anxiety and Anxiety Disorders

In addition to happiness, sadness, anger, and desire,anxiety is one of the five important normally andregularly occurring emotions which can be observed

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Antitrust Policy