Antitrust Institutions and Policies in the Globalising Economy

Eleonora Poli

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN: 9781137482945
• eBook ISBN: 9781137482952
• Topic: Economics
• Subtopic: Macroeconomics
• Index: Economics

Eleonora Poli analyses how ideas and material interests have come to determine the evolution of antitrust policies in the USA, EU, Japan and BRICS. She argues that three major economic crises together with market globalisation have changed governments' perceptions of market competition, giving rise to a neo-liberal global phase.

Part I

Antitrust Institutions: Ideas Interests and Changes

1

Perspectives on Antitrust

According to Harvey (2013, pp. 6–7), ‘competition is one of those vague terms which are freely used in all discussion of social subjects; it conveys some meaning to all who utter or hear it; but this meaning as a rule is undefined and therefore inconstant; the word has different suggestions for different people’. Proceeding from Harvey’s definition, this chapter attempts to understand why antitrust policies can be perceived in different ways and how ideas can influence their evolution. Therefore, in order to explain how ideas have been able to modify political actors’ perceptions of antitrust or competition regulations over the course of history, we need to clarify the essence of competition as well as its general connotations. The notions of antitrust, competition policy and competitiveness are all semantically eclectic (see: De Gaay Fortman, 1966, p. 1; Neumann and Weigand, 2004, pp. 9–10). They do not only refer to a condition of rivalry in the market; they are also considered natural promoters of economic efficiency and welfare. Thus, this chapter will first seek to achieve a broader understanding of those main concepts, forming as they do the backbone of this research.

Secondly, the chapter will offer a theoretical framework to explain how ideas have influenced the evolution of antitrust policies. Indeed, while the meaning of competition is rivalry and its objective should be efficiency and welfare, the way regulators and politicians perceive those economic concepts changes according to the body of ideas that influences them. While legal, economic or political analyses provide different interpretations of the subject, they all confine their investigation to the extent to which policies or regulations are implemented in order to satisfy specific social, economic or political needs. By contrast, a pan-institutional approach, which includes elements of different international political economy (IPE) institutional schools, seems to be an adequate theoretical perspective to support the study of the role of ideas and interests in influencing the evolution of antitrust regulations.

Understanding antitrust: the evolution of the concept

Scholars such as Dabbah (2003) or Amato (1997) maintain that, when examining antitrust policy, it is essential to regard ideas, social suggestions, culture, political ideologies or economic theories as the basis of what inspires politicians to enact or re-interpret different competition and antitrust laws. The notion of competition, or market competition, dates back to the ancient world; the very term originates from the Latin word competitio, meaning rivalry. This ‘rivalry’ normally refers to the ways in which firms play in the market in order to achieve a particular business objective.

Thus, competition policy can be defined as the political and regulatory framework that dictates the rules of conduct in the market (Scherer, 2000, p. 29). While most countries refer to such discipline as ‘competition law’, the US uses the term ‘antitrust’ instead. The American peculiarity is due to the different evolution of the meaning of the word ‘trust’. Originally denoting a common law arrangement whereby a property could be managed by one person or organisation for the benefit of another, the word changed meaning when, from the second half of the 19th century, many American corporations began to create cartels and to name them ‘trusts’ to conceal the nature of their business. The American response against the formation of this kind of economic arrangement came to be referred to as antitrust law and policy (Peritz, 1996). Although competition policy has a broader meaning than antitrust policy – as it may include intellectual property law, subsidies and antidumping law – in most cases the terms can be used synonymously (Morici, 2000, pp. 3–4). They both aim to foster competitive market conditions by limiting those practices such as mergers, cartels, monopolisations and general unfair agreements that can damage market trends, generate negative externalities and result in high social costs (Neumann, 2001, p. 1; Hildebrand, 2009, p. 1; Graham and Richardson, 1997, p. 7; Gellhorn and Kovacic, 1994; Utton, 2008, p. 24). Indeed, while economics is commonly concerned with reaching efficiency at lower costs, in the case of antitrust, efficiency is as much an objective as are welfare, equity or a fairer distribution of economic opportunities, guaranteed by market freedom to invest (Fox et al., 2004, pp. 57–58).

It follows that since competition policy ought to protect economic freedom, the regulator should intervene in the market and use competition regulations to channel, and not to restrict, the flow of business activities in order to avoid the rise of anticompetitive practices (Graham and Richardson, 1997, p. 14; Gotte and Schmutzler, 2009, p. 189; Van Damme, Larouche and Muller, 2009, p. 109). However, the protection of economic freedom can translate either in laissez-faire policies or in the defence of those smaller firms that have fewer possibilities to invest in the market. The latter practice does not necessarily imply recourse to protectionist measures. On the contrary, it may ensure the possibility for everyone to be active in the market and not to be limited by the power exerted by big corporations. Hence, the extent to which antitrust law should or should not intervene in the market depends on how efficiency and welfare are conceptualised.

Generally speaking, economic efficiency and welfare are strictly connected. Indeed, efficiency is the outcome of the competitive pressure that pushes companies to perform to the best of their capacity and obtain the highest profit. This results in the production of goods marketed at prices that are in Paretian equilibrium and equal to both the marginal profits from the buyer side and marginal cost from the seller side. In the long term, therefore, economic efficiency can enhance consumer welfare because it allows products to be sold at a price that maximises consumer profits (Hovenkamp, 2008, pp. 3–10). On the other hand, welfare is defined as the sum of consumer surpluses and producer profits and, in economics, it is an important indicator of whether an action is economically efficient for society or not. According to Massimo Motta (2004, p. XIX), consumer surplus is, in fact, given by the difference between the value attributed to a product by consumers and the price it is purchased for. In contrast, producer welfare results from the profit producers register upon selling goods or rendering services. Hence, rising commodity prices reduce consumer welfare while increasing producer welfare. However, the reduction of consumer benefits is never inversely proportionate to producer benefits, once these are enjoyed. Briefly put, higher prices cause customers to lose more than what manufacturers gain.

According to Robbins (1984, pp. 3–37), such definition of welfare is not very precise because it does not allow for a distinction between the benefits produced by material and immaterial goods. For instance, some professions, such as doctors and teachers, create a kind of wealth that is not quantifiable. On the contrary, there are material products, such as drugs, alcohol or cigarettes, which may enhance immediate economic gains but reduce social benefits. Against this background, it is very difficult to provide a precise and consistent definition of welfare, since it is not easy to identify social utilities and negative externalities. The impossibility to even quantify social benefits or general efficiency partly explains why the ways in which such economic interests are pursued vary according to the country taken into consideration, especially with regard to its culture and believes.

These factors make a compelling case for an international political economic (IPE) investigation into the institutional aspects of competition regulation. In this respect, an institutional IPE approach implies the study of how a set of ideas, economic theories and cultural frameworks of reference, by influencing the perception of reality, shapes political decision-making processes and allows for the enforcement of institutions. Generally, IPE has the merit to overcome the short sights of a pure economic-juridical approach by introducing a political element in the analysis. Indeed, while economics and law are undoubtedly useful to appreciate the technical effects of antitrust regulation on the market from a problem-solving point of view, neither of the two questions ‘the existing order of things’, nor do they challenge the ‘prevailing discourses against the background of which competition policy is formulated’ (Buch-Hansel and Wigger, 2010, p. 23; see also Flynn, 1977, pp. 1182–1190; Dewey, 1964, pp. 413–434; Bork and Bowman, 1965, pp. 363–376; Schwartz, 1979, pp. 1076–1081; Bernhard, 1967, pp. 1099–1166; Bork and Bowman, 1965, pp. 363–760; Elzinga, 1977, pp. 1191–1213). Besides, those approaches are also often accused of concealing and limiting our understanding of ‘the profoundly political nature of competition policy’ (Wigger, 2009, p. 13; see also Pitofsky, 1979; Schwartz, 1979, pp. 1076–1081).

Instead, IPE deals with the analysis of the interrelation between politics and economics (Blyth, 2009, p. 1; Miller, 2008). This approach is not so innovative; until a century ago, all the most prominent economic thinkers, such as Adam Smith, John Stuart Mill and Karl Marx, did not distinguish economics from politics, but considered economics as ‘eminently political’ and vice versa. In this view, since economics deals with the system of ‘producing, distributing and using wealth’ and politics ‘is the set of institutions and rules by which social and economic interactions are governed’, an analysis of the evolution of antitrust ought to consider both points of view (Frieden and Lake, 2000, pp. 1–3; Pitofsky, 1979; Schwartz, 1979, pp. 1076–1081).

Approaches to antitrust

Traditional approaches towards competition – tend to see it as a process through which business actors are forced to choose the most effective means of maximising their profits and to inexorably push less efficient rivals out of the market. As Hodgson (2001, p. 68) points out, the ‘strategy, structure and goals of the firm are uniquely determined by competition’. While this is generally correct, such a view lacks a more in-depth understanding of the whole rivalry process. While profit is the objective, the possible ways to achieve it as well as the possible strategies to adopt are legion. In this sense, the behaviour of firms proves to be highly variable in that they implement different manoeuvres, calculations, rationales and practices (Tomlinson, 1982, p. 34; Hodgson, 1996, pp. 380–433). Following from this, Hodgson (1996, p. 391) goes on to assert that there are a variety of modalities through which competitiveness is pursued because, as argued by Cyert and March (1963), actors are most of the time ‘profit-seeking and not strictly profit-maximising’. This allows for the adoption of several practices in accordance to the cultural contexts in which economic actors operate or to what Veblen (1899, 1919) defines as habits. It follows that since culture varies from country to country, the practices of firms differ accordingly and are formalised into different institutions.

In this view, an institutional IPE approach can be used to build a theoretical framework of reference that would provide us with efficient instruments to comprehend how actors perceive reality and build regulatory frameworks to constrain or enable particular practices. The advantage of this approach lies in its flexibility and potential adaptability to all social contexts. On the contrary, traditional IPE tends to create a fixed and theoretically perfect system, where all actors are understood as following the same rules. Hence, it is easy to understand the critiques of neo-classical and Marxian IPE theorisation of capitalist systems. Indeed, although their contribution to our understanding of general economic systems is invaluable, their incapacity to engage with individuals and individual choices remains a strong limitation. They take a purely rational stance on social-economic transactions, whereby rules are stacked into rigid normative schemes of understanding reality. On the contrary, human behaviour, and the way people perceive reality and respect rules, is constantly transformed according to the surrounding social, historical, cultural and economic context.

In this sense, an institutional interpretation of competition is fundamental since it can offer the lenses through which we see reality in all its complexity. Institutions become the necessary tool to understand the existing variety of different forms of capitalist and, in this specific case, competition practices as they are not only the backbone of market economy and competition, but also a product of social contexts and cultures that do not pre-exist the market, but rather follow from it (White, 1998, pp. 226–259). Although institutions are interpreted according to different perspectives, one of the things that connects almost all the different approaches is the impossibility of recollecting everything to an abstract and absolute rule. In this respect, institutional sociological scholars have particularly addressed this issue. For instance, Durkheim rejected the existence of universal laws by maintaining that ‘between the confused multitude of historic societies and the single, but ideal concept of humanity, there are intermediaries, namely social species’ (1964/1895, p. 77). Weber (1978), too, affirmed the necessity of constructing a theoretical framework to understand reality through, not universalistic concepts, but ideal types, which, like Durkheim’s social species, were more flexible than the classical universal laws applied before him (Hodgson, 1996, pp. 380–433). This suggests that although the interpretations of institutions differ, the impossibility of categorising evolution through unifying principles is an idea shared by virtually all of them (Laszlo, 1982).

Institutions can be defined as the structure that delineates the anatomy of a social realm; they constrain human behaviour but, because they evolve, they do not consist of permanent and absolute dogmas. They are a set of formal and informal rules that shape political-economic and social interactions by limiting or enabling particular patterns of behaviour and are the product of a specific ideological, cultural and theoretical substratum (Aoki, 2001, pp. 1–29; Nee and Ingram, 1998, pp. 19–45; Furubotn and Richter, 1998, p. 7; Hodgson, 2006, pp. 1–25; Knight, 1992; Wells, 1970, pp. 7–8). Institutions provide some structure but, at the same time, they also reflect the general ideas of a given social context. They are not fixed, but change and, by changing, they modify human reality and its rules. Antitrust law fits perfectly into this definition. While its objective is to develop competitiveness by limiting or fostering the individual freedom to operate in the market, its institutionalisation depends on the main ideological context behind the policy-making process of every government. Nonetheless, since institutional IPE encompasses and combines different social-scientific perspectives, the next section will briefly define the main institutional tradition in order to shape a ‘pan-institutional’ approach, which, as an alternative tool of investigation, seems best suited for the aims of the analysis.

Institutionalism: a political approach

The first attempt to analyse economic and juridical institutions from a political perspective was developed by historical-institutional scholars. This approach, while hardly a political theory on its own, counts as a compelling conceptualisation of institutional development through time, in that it attempts to identify and create theoretical models for the sequence of events that shape political processes (Fioretos, 2011, pp. 367–399). The first political institutional approach was developed in the 19th century, when scholars such as John Burgess (1890), Woodrow Wilson (1889) and Westel Willoughby (1986) started to investigate how state’s institutions structure interests and power relations around political actors (Thelen and Steinmo, 1992, p. 2). Outside of this circle, however, historical institutionalism was only picked up at the beginning of the 1980s, when scholars, such as March and Olsen (1983) and Hall and Taylor (1996, pp. 952–953), began to investigate the role of temporality and the extent to which institutions could shape political strategies, influence political outcomes and empower social actions (Thelen, 1999, pp. 369–404). According to them, while the rationale behind every political action, as well as the nature of the constraints under which individuals act, varies constantly over time, these changes are influenced by previous events.

In this sense, an historical analysis becomes essential for a proper understanding of politics because each decision and political action is conceived as a reflection of previous ones, rather than just as a mere result of interests or of the contingent constraints of the time (Theda, 1985, pp. 3–37; Steinmo et al., 1992; Hall, 1986). Usually, policy-making systems tend to be conservative and to defend their status quo through institutions that create enduring patterns, thereby making any alteration of the political configuration difficult (Pierson, 2000, p. 252). Historical institutionalism, indeed, interprets public policymaking and political change as a distinct process. Generally speaking, policymaking follows previously established paths, while radical political change, and therefore institutional modification, occurs during the ‘formative moments’ that punctuate long periods of stability (Peters et al., 2005, p. 1276).

The main critique levelled at historical institutionalism relates to its rigid normative nature. Indeed, while the investigation of past and current events seems to offer a clear frame of reference, it only provides a limited comparative analysis of different institutional frameworks, which does not allow for a sufficient examination of institutions themselves or of the ways in which those elements conceal and limit the boundaries of individual actions (Thelen and Steinmo, 1992, pp. 2–5). In other words, by describing policy change as a process tied to institutional alteration – which, in turn, depends on an intermittent path-dependent process – historical scholars tend to analyse political events according to a retrospective analysis that conceals the profound complexity of decision-making processes in times of change (Peters et al., 2005, pp. 1275–1300).

The historical school has found its main theoretical rival in the behaviourist school, which from the beginning of the 1930s started to develop an alternative approach to the interpretation of policy change. Those scholars attempted to separate politics from philosophy, and to rebuild political science as a theoretically guided empirical discipline. In other words, from a behaviourist prospective, the understanding of politics and its outcomes should not be focused on ‘the formal attributes of government institutions but instead on informal distribution of power, attitudes and political behaviour’ (Scott, 1995, p. 7). According to those scholars, actors have a fixed set of preferences and tastes, so their actions are led by the need to maximise these utilities, rather than by impersonal historical forces. Here, the role of political institutions is fundamental in solving collective-action dilemmas because, while an individual action can be efficient for the single individual, it can be detrimental for the community as a whole. Hence, institutional arrangements need to adjust regulatory boundaries so as to guarantee complementary behaviours, avoid the rise of negative externalities and reduce uncertainties (Hall and Taylor, 1996, pp. 941–949).

By understanding institutions as a rational form of governance, rational-choice theorists from the New Institutionalism School, such as Moe (1984), Weingast et al. (1981) and Weingast (1979), have adopted an economic-oriented neo-institutional model to study political structures. Indeed, in the political arena, much as in the market, individuals are seen as acting in pursuance of their personal interests (Moe, 1990, p. 217). As Simon (1985, p. 294) argues, by combining the principle of substantive rationality with the range of individual convenience and his or her expectations, it is possible to hypothesise the outcomes of actual human behaviour (Keohane, 1988, p. 381). The main critiques of this approach revolve around the fact that it tends to consider politics from a social science perspective in its description, for example, of the voting process as directed towards the maximisation of interests – when in fact political dynamics are far more complex and are generally inclusive of many other elements, such as material r...

Table of contents

• Cover
• Title
• Introduction
• Part I  Antitrust Institutions: Ideas, Interests and Changes
• Part II  Antitrust Institutions in the Globalising Economy
• Notes
• Bibliography
• Index