treble damage suits provide undesirable opportunities for harassment and the
furtherance of a variety of anticompetitive practices.
With regard to remedial sanctions, the principal question involves the undesir-
able side effects that frequently accompany a poorly formulated decree. Ideally â€”
and it is an attainable ideal â€” an antitrust decree should be a "one shot" affair :
dissolving the monopoly, or divesting the acquired assets, or terminating the
basing-point system, etc. The antitrust laws were never intended to be a system
of continuing regulation. Antitrust policy has as its basic principle the preserva-
tion of a competitive environment within which individual enterprises are free
from continuing super^dsion. When a decree says, in effect, "Let us return to
the court, or give the power to the Antitrust Division, to adjudge the propriety of
various behavior of the defendant for years to come," one can be sure that the
suit has failed in its purpose of restoring competitive conditions. Nor is the
Department equipped to function as a regulatory agency, and it is not likely to
escape that common pitfall of economic regulation, the suppression of competition.
Nonetheless, such decrees are frequently entered, especially by consent of the
parties in cases where the Department (or the Federal Trade Commission, to
which these remarks apply with efiual, if not greater, force) is unsure of its
litigation prospects and washes to salvage something from the investment of
For the future, we urge that the Department adopt a firm policy of not proposing
or accepting degrees that envisage a continuing, regulatory relationship with
the defendant. A correlative policy that we suggest is that every decree contain
a definite â€” and near â€” termination date, ordinarily no more than 10 years from
the date the decree is entered. Such a principle would compel the Department to
devise decrees that restore competition rather than establish regulation, as well
as assure that decrees do not remain in effect long after the relevant industrial
conditions have changed (such as with the 1920 decree against the meat packers).
Little is known of the extent to which a large number of past decrees are still
operative, and if operative, of any real value in protecting competition. We rec-
ommend, therefore, some such procedure as this in dealing with outstanding
1. The past decrees still running should be compiled, and the types and duration
of prescribed conduct summarized.
2. The current relevance of the decrees, or at least those running against large
industries, should be examined â€” presumably by the economics section of the
3. The older (say 25 years and over) and obsolete younger decrees should be
E. Recommended changes in antitrust statutes
Several legislative reforms could improve .substantially the functioning of
the antitrust laws. We have recommended above a .substantial increa.se in the
maximum level of fines. In addition, we recommend immediate repeal of the
Expediting Act. The low quality of many Supreme Court antitru.st opinions can
be traced in no small measure to the fact that direct appeal frequently requires
the Supreme Court to pass on an extensive record without the benefit of the
winnowing and focusing process involved in an intermediate appeal. The Su-
preme Court itself has noted that direct appeal is unsatisfactory. If repeal is
politically impossible, then an amendment that would drastically limit the
number of direct appeals would be desirable.
The Webb-Pomerene Act should also be repealed. The creation of cartels in
foreign commerce is antithetical to the underlying theory of the Sherman Act.
The danger that exempted cooperation between competitors in the export field
will lead to illegal cooiie ration at home is too great to be viewed as merely
a potential abuse. Nothing in U.S. domestic comi>etition ix)licy or foreign eco-
nomic policy warrants the retention of this outmoded approach to international
On the agenda for long-term legislative reform must be the Robinson-Patman
Act. The Act leads to rigidity in distribution patterns and to uniform, inflexible
pricing. In industries with few sellers, price reductions are more likely to be
made if they can be made covertly. Such limited reductions often lead over time
to generally lower prices. Thus, a prohibition against i>rice discrimination may
preclude the kind of completion that is most likely to lead to lower prices
in oligopolistic industries. We view the Federal Trade Commission's tendency in
recent times to relax the enforcement of the Act as a desirable but, so long as
private treble damage actions are available, an inadequate reform.
In reforming the Robinson-Patman Act, two kinds of amendment are de-
sirable. First, the general prohibition against price discrimination In Section
2 (a) should be made more supple by broadening the meeting competition and
cost justification defenses so as to make them more i-eadily available for sellers
whose price differentials do not stem from a predatory purpose and do not
injure competition in the market place (as opposed to disadvantaging individual
firms). Second, the more absolutist brokerage, payments and services prohibi-
tions of subsections (c), (d) and (e) should be repealed while making clear
that the standards of amended subsection (a) remain applicable to practices
that would previously have been treated under tho.se repealed sul)sections. The
Task Force recognizes the political support that the Robinson-Patman Act retains
in some quarters and the danger that an attempt to amend the Act might give
particular interests an opportunity to add even more restrictive provisions. As a
consequence, some of our members view amendment of the Act as a long-term,
albeit important, reform ; others wish to leave it alone.
Ward S. Bowman, Jr., Ronald H. Coase, Roger S. Cramton. Kenneth W.
Dam, Raymon H. ]\Iulford, Richard A. Posner, Peter O. Steiner, Alex-
ander L. Stott, George J. Stigler, Chairman.
Dissent of R. H. Mulford With Respect to Portions of Report of Task Force
ON Productivity and Competition
Mr. Raymon H. Mulford dissents from two recommendations in the Report :
1. He does not believe that the maximum fine of 50 thousand dollars for viola-
tion of tihe Sherman Act should be increased.
2. He does not believe that the Webb-Pomerene Act should be repealed.
Dissent of A. L. Stott With Respect to Portions of Report of Task Force
ON Productivity and Competition
I cannot accept the recommendations of the Task Force with respect to com-
petition in the regulated industries.
W^hat is recommended is that, without seeking Congressional action changing
exi.sting regulatory statutes, the Administration exert pressure to compel regu-
latory authorities to adopt a new interpretation of such statutes which is radi-
cally different from the interpretation long estaWished as being intended by Con-
gress. The report recommends that the President issue a general policy state-
ment to implement this approach. I believe that these recommendations of the
Task Force are unwarranted and that it would be unwise for the President to
assume the role which the report contemplates for him in the regulated area
of the economy.
Under the approach of the Task Force regulatory authorities would be pres-
sured by the Administration into giving primary importance to the imposition
of competition on regulated industries. The basic difficulty I have with this
api)roach is that it ignores the fact that in certain areas of the economy, notably
in industries with "natural monopoly" characteristics, Congress has clearly and
unmistakal>ly adopted a policy not to promote but to limit competition. Moreover,
it ignores the fact tliat it is for Congress, not the Executive Branch, to determine
the relative roles of competition and regulation in the economy.
The report treats as regulated industries not only the industries with "natural
monopoly" characteristics, such as the electric, gas, water and communications
industries, but also the financial, radio and television industries. It then takes a
broad view as to all of them that the present statutory controls should be replaced
wherever possible by competition, and that the Administration should direct its
attention toward imposing competition on regulated industries.
However, the public interest considerations and the schemes of governmental
control are entirely different in the case of (1) industries with "natural monopoly"'
characteristics and (2) the other industries mentioned. Although the industries
in the second group are subject to varying degrees of governmental control, prices
are not regulated, except in unusual situations, and competition is expected and
required by law. It has been the long established public policy of this country,
however, to subject industries with "natural monopoly"' characteristics to much
more comprehensive governmental regulation, in lieu of competition, as to many
aspects of their businesses including entry, prices, services, accounting, deprecia-
tion, etc. This method of regulation has not been free of problems. However, I
believe that such problems can be solved within the framework of the present
regulatory structure without a change of existing laws.
The report is critical of the existing regulatory purposes as well as the regula-
tory processes, and casts doubt on the effectiveness of regulations in general. The
criticism is not supported by any factual showing. The report urges that only by
superimposing competition on regulation can proper objectives be achieved. There
is no reference to the unfortunate results that the imposition of competition has
produced in the railroad industry.
I want to make it clear that I am not urging that competition is never appro-
priate in the regulated field. My point is that, where legislation calling for strict
regulation of the prices and services of an industry because of its "natural monop-
oly" characteristics has been enacted by Congress, any competition imposed upon
the industry must be consistent with the statutory scheme of regulation. Com-
petition cannot properly be imposed on such an industry just for the sake of
competition on the general assumption that competition is bound to be of advan-
tage. The courts have held that it is for Congress to establish the public policy
of the United States as to the relative role of regulation and competition in our
ecoiiomy. In FCC v. RCA Comniunications, Inc., 346 U.S. 86 (1958). the Supreme
Court held that the Congress has 7Wt established a national policy in favor of
competition within the regulated public utility field. Indeed, in that case the Court
expressly prohibited the FCC from authorizing competition in a comprehensively
regulated field without warranting some specific benefits to the public, saying:
"Merely to assume that competition is bound to be of advantage, in an industry
so regulated and so largely closed as is this one, is not enough."
Under the existing statutory schemes of regulation competition is permitted in
an industry with "natural monopoly" characteristics only when found to be in the
public interest by the governmental agency having jurisdiction over the industry.
Before a determination of this kind is made the governmental agency holds
extensive hearings, and all parties affected are heard, of course, the views of
economists are sought and carefully weighed in the process. However, in pro-
ceedings of this nature no generally accepted economic principles have emerged
that could substitute for the judgment determinations intended by the statutes
and made by regulatory agencies after considering the business, economic, socio-
logical, political and other public interests factors involved.
It must be recognized that a proceeding of this kind can involve issues of a
major national importance. This is certainly true as to a numlier of proceedings
of this nature now pending before the Federal Communications Commission.
The Task Force report would change this present regulatory procedure, and it
makes several recommendations as to the courses of action that should be taken
to effect the change. Among the recommendations, the report would "urge the
commissions to permit free entry in the indsutries under i-egulation and to
abandon minimum rate controls, whenever these steps are possible â€” and we
think they usually are'\ The President is asked to designate the Antitrust Divi-
sion as the "effective agent of the Administration" to put pressure on the regula-
tory agencies to act in accordance with the views expressed in the report. This
approach appears to me a misunderstanding of the proper function of the Depart-
ment of Justice in the regulated field.
Like all executive departments, the proper function of the Department of
Justice is the enforcement and execution of the laws of the United States.
Activities of the Department of the kind proposed by the Task Force before regu-
latory agencies would, however, not relate to the enforcement of the antitrust
laws. On the contrary, the proposal would seem designed to place the Depart-
ment in the position of urging regulatory commissions to adopt economic iwlicies
which are 7iot based on the public policy of the United States as expressed
by Congress in the antitrust laws or elsewhere. To the extent that it is within
the power of commissions to adopt competition in the regulated areas, they can
do so only in the exercise of their administrative discretion. The Department
of Justice, however, has no special comi)etence in advising commissions how
to exercise their discretion in the proper discharge of their regulatory func-
tions. In this connection it is signiticant that the Attorney General has con-
sistently taken the position that it is improper for him. in the exercise of his
function of giving opinions to executive departments, to advise them as to
questions of administrative policy. I believe that it would be equally improper
for the Department to use its prestige and power to force regulatory agencies
to adopt administrative policies along the lines urged in the report.
Another important recommendation is that the President issue a general policy
statement which would place the prestige and force of his oiEce behind the
recommended changed method of operation under regulatory statutes. It would
place the President in the position of attempting to change national public
policy as incorporated in the statutes which dictate that competition should be
introduced into the regulatory industries only when commissions who have ex-
tensive experience with the industry are satisfied after careful study that the
public interest requires such competition. It might be construed as an attempt
by the Administration to interfere improperly with the operations of the inde-
pendent regulatory agencies. If the President has doubts as to the effectiveness
of the present regulatory laws. I believe the proper approach for him would be
to request Congress to study the situation with a view to altering the existing
laws. Based on my knowledge of the purposes and performance of regulation,
I feel that the approach of the Task Force is unwarranted and is not the proper
way to undertake such an important change in regulatory policy.
Working PAPEai for the Task Force on Productivity and Competition : the
(By Ronald H. Coase)
There is a loud clamour to proceed against conglomerate mergers under the
antitrust laws and the political pressures exerted for such action are strong.
It is my view that such pressures should be resisted, an opinion which I know
is shared by some other members of the Task Force.
The acquiring of an enterprise by a firm which has interests in other unre-
lated enterprises, unlike a horizontal merger, has no direct anti-competitive
effects. It leaves the competitive situation essentially unchanged. Indeed, the
main complaints about the conglomerate relate to other things. It is said
that a firm with a high price/ earnings ratio (based on the assumption that
its profits will grow rapidly) is able, through acquiring firms with a low price/
earnings ratio, to produce an apparent rise in the i)er-share earnings and thus
justify the pre-existing belief in the rise in its profits. It is, of course, clear
that this process cannot go on for long, (if this is the real basis for the con-
glomerate's rapid growth in profits) since it needs more and more acquisitions of
organizations with low price/earnings ratios to maintain this apparent rapid
growth in the earnings of the conglomerate, as the acquired firms are presum-
ably ones in which there is little prospect of a rise in earnings or a considerable
chance of decline. Whether investors are, in fact, misletl about what is going
on, I do not know. But if there is a problem. It seems clear that is one for
the Securities and Exchange Commission.
It is also claimed that these conglomerates will be inefficient. A more likely
result is that some will be inefficient and some will be efficient. Competition will
sort them out. Those that are inefficient will find resources hard to get and may
indeed be forced to dispose of some of their constituent parts. As it is impossi-
ble to determine by court proceedings wliicli of these mergers will be efficient
and which will not, and competition will in fact do this (and probably in less
time than the court proceedings would take), there seems little point in using
the efficiency issue as a basis for antitrust actions.
Some support for antitrust action against conglomerate mergers has been
based on the fact that the firms might engage in reciprocal buying between
constituent units. This practice might, of course, lead to greater efficiency (for
example, by reducing marketing costs) or it might lead to inefficiency (by sub-
stituting a subsidiary's higher cost supplies for an outsider's lower cost sup-
plies). If this practice leads to efficiency, there is no reason to stop it; if it leads
to inefficiency there is no reason why the conglomerate should adopt it (since
it would reduce its overall profits) .
No convincing case has as yet been made for taking antitrust action against
conglomerate mergers. Until it has, the Antitrust Division should resist the
pressures and devote its resources to combatting clear threats to the competitive
I do not regard this conclusion as inconsistent with the view that there are
other values to be taken into account apart from the efficiency, narrowly con-
ceived, with which society uses its resources. One of these values is that it is
undesirable to hang a man for an imaginary crime. If policy is to be based on
"fear of size," it is purely desirable to discover what is really feared, whether
it results from size and whether this comes about in all circumstances or only
in some. Even if these fears are properly based and size in certain circumstances
is found to have consequences that ought to be feared, and these consequences
are such as to be properly dealt with under the antitrust laws, it is by no means
clear that the Department of Justice should give first priority to recent con-
glomerate mergers, most of which are outranked in size by a hundred or more
other firms in the United States. What I urge (with no more than that modicum
of moral fervour proper in the circumstances) is that antitrust actions should
not be brought unless there is reason to believe that the practices attacked
have serious adverse consequences, properly handled by the antitrust laws. This
does not seem to me to have been established, as yet, in the case of the con-
glomerate merger. A regard for procedural decency may indeed often reduce one's
chance of influencing policy, but not, I hope, when one is dealing with the
Department of Justice.
Working Paper for the Task Force on Productivity and Competition :
(By George J. Stigler)
The allegation of reciprocity in the dealings between independent companies
is extremely widespread, although systematic quantitative study of the extent
of reciprocity has never been made. The doubts of the importance of reciprocity
(except in one important and identifiable class of dealings) held by the economist
may be stated.
Consider first the fully competitive situation in which seller S produces X,
and purchases Y in producing it, and buyer B produces Y, and purchases X
in producing it. Now let B initiate reciprocity, refusing to buy X from S
unless S buys Y from B. The possibilities are :
1. B sells Y on the same terms as his rivals (and, in each of these cases,
S sells X on the same terms as his rivals). There is no cost-or-gain to either
party in the reciprocity.
2. B sells Y on more favorable terms than his rivals. Then compulsion is not
necessary to get S's patronage.
3. B sells Y on less favorable terms than his rivals. Then S will be injured
by purchasing from B.
Clearly, in case 2 there need be no compulsion to reciprocity and in case 3
the reciprocity will be refused. Case 1 is harmless and pointless, and I assert
that it is quantitatively negligible. The non-economist will often object to ca-e 1 :
(a) The preference given B's product is unfair to rivals selling on espial terms.
The answer is double: the preference will not be given if it imposes (iiiii cost
on S: and if there is competition the rivals are not injured in the least;
they can sell elsewhere the quantity they previously sold to S, and without a
5G-13Sâ€” 69â€” pt. 1 1!
reclucion of price. Differently put : neither supply nor demand has changed, so
price will not change.
(b) The reciprocity eliminates "selling expenses". Putting the question of
fact (for often reciprocity complicates trading), if there are economies from the
reciprocity, the practice should spread, and will not injure competition.
The opposite situation, where S is the only seller, B the only buyer, raises no
interesting questions of reciprocity, which is inherent and unavoidable. There
remains the case of one-sided monoply.
So long as the seller (or buyer) with monopoly power has a single price,
reciprocity has no real effect. Suppose the monopolistic seller extorts a pref-
erential price from the buyerâ€” then he is using a portion of his monopoly powers
indirectly when he could be obtaining the same extra sum directly by selling
at a higher price. If the seller (or buyer) with monopoly power sets a different
price for some buyers than for others (and so practices price discrimination),
it is possible that he may increase his profits. But the only purpose in varying
prices through reciprocity (paying different prices to different customers for
their products) would be to conceal the discrimination.
The ease for reciprocity arises when prices cannot be freely varied to meet
supply and demand conditions. Suppose that a firm is dealing with a colluding
industry which is fixing prices. A firm in this collusive industry would be willing
to sell at less than the cartel price if it can escape detection. Its price can be
reduced in effect by buying from the customer-seller at an inflated price. Here
reciprocity restores flexibility of prices.
In short reciprocity is probably much more talked about than practiced,
and is important chiefly where prices are fixed by the state or a cartel.
Working Paper for the Task Force on Productivity and Competition : A'erti-
CAL Integration by Merger or Contract
(By Ward S. Bowman)
The law prohibiting vertical mergers and various forms of vertical contracts
has become increasingly stringent, inconsistently applied to different arrange-
ments having identical economic eft'ects. but more important, has had profoundly
anticompetitive results. The notion that vertical ai'rangenients can, by foreclos-
ing or excluding rivals create or maintain monopoly has been misconceived by
legislators, antitrust prosecutors and courts. Such integration, neither in theoiy
nor in i>ractice, has yet been shown to confer any aliility to alter market price,
to imi>ede entry, or to add any unique ability to employ predatory tactics. Vertical
integration provides no disclosed means of leveraging into new monopoly, of
exercising "price squeezes", or of discriminatorily cutting prices at one level by
advancing prices at another. On the contrary, this form of integration, whether
by merger or various forms of contractual arrangements, can and does enable the
integrating firm to bypass or erode monopoly elsewhere, and, equally important