Anti Trust Policy and Monopoly

Anti trust policy refers to government intervention in markets dominated by monopolies and abuse of monopoly power. In the UK, anti trust policy is better known as simply competition Policy, with the OFT and Competition Commission investigating mergers and abuse of monopoly power.

In the US, antitrust become important in the late nineteenth century, when American industry and become dominated by a few very powerful firms – in particular Rockefeller and J.P. Morgan trust’s. In 1890, the US anti trust board successfully broke up some of the big Railroad firms, Du Point chemicals and Rockefeller corp. This became known as the Sherman Antitrust act of 1890 and dominated American antitrust policy in the twentieth centuries.

Anti Trust and Monopoly.

Under the Clinton administration, the monopoly power of Microsoft was targetted and the company was recommended to be broken up. However, on appeal Microsoft were able to overturn the judgement. This shows the debate about how aggressive anti trust policy should be. For example, some economists (such as the Austrian school) argue big firms are not necessarily bad but maybe a reflection of a successful company.

Anti Trust and Contestability

Often anti trust policy was based on the market share of the leading firms. E.g. if a firm had more than 25% it was assumed to have market power. However, recently greater importance has been given to contestability. This looks at the the ease of entry and exit into the market. If there is ease of entry then the threat of competition may be sufficient to keep prices competitive, no matter what the market share.

By on January 9th, 2008