Market Failure Due to Monopoly 451accused company deliberately priced at a loss, that this behavior had a
reasonable chance of driving rivals out of business, and that the
accused would profit as a result. Because of this standard, few
predatory cases are brought in the United States and even fewer win.
In Europe, where the standard of proof is lower, suits alleging
predatory pricing have been more successful. In 2009, the European
Commission fined Intel $1.45 billion for offering steep price
discounts to customers committing to buying 80 to 100 percent of
their needs (allegedly excluding rival suppliers).- Preventing Mergers That Reduce Competition. The government also
has acted to prevent mergers where the merger would significantly
reduce competition. American merger policy was born in opposition
to the great wave of mergers and consolidations at the close of the
nineteenth century. The original philosophy of the trustbusters was
that market dominance and monopoly were bad in and of themselves.
Until the 1960s, this remained the prevailing view. In 1962 the
government successfully sued to prevent the merger of Brown Shoe
and Kinney Shoe, respectively, the fourth and eighth largest
manufacturers of shoes at the time. In 1964 the government
prevented the merger of the second largest producer of metal
containers with the third largest producer of glass containers. And in
1966 the government stopped the merger of two Los Angeles grocery
chains that shared just 8 percent of the local market.
By the 1970s and 1980s, however, the “Chicago School approach”
had assumed dominance in the antitrust arena. According to this
philosophy, the forces of free-market competition are far more
effective at limiting monopolies than government regulators. Absent
prohibitive barriers to entry, a firm’s market power would only be
temporary. High profits would attract new entrants attenuating the
monopolist’s power. Following this approach, the Reagan and Bush
administrations used their antitrust powers sparingly.
In the 1990s antitrust thinking accepted new reasons for
government action.^3 Size was not the first concern. Rather, would the
combination have the power to raise prices? For instance, the
combination of Staples and Office Depot would have claimed only
about 4 percent of the national office supply market. However, the
government’s economic analysis predicted that prices would rise by 15
percent or more in markets where the stores formerly competed head
to head. Under different circumstances—for instance, if the sixth and
seventh largest firms were to combine to compete evenhandedly with
(^3) See L. Uchitelle, “Broken System? Tweak It They Say: Economists Tiptoe on New Regulation,”
The New York Times(July 28, 2002), p. BU 1, and J. R. Wilke and B. Davis, “Lines that Divide Markets
Likely to Blur under Bush,” The Wall Street Journal, December 15, 2000, p. A18.
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