Antitrust, Mergers, and Chapter Global Competition 9 Business and Society

POST, LAWRENCE, WEBER

Figure 9-1

The 10 largest global corporations, 1999-2000
Rank
1 2 3 4 5 6 7 8 9 10

By sales (billions of U.S. $)
Exxon Mobil 185.5 General Motors 173.2 Wal-Mart 166.8 Ford Motor 162.6 Daimler Chrysler 151.0 Mitsui 129.8 Mitsubishi 127.1 Toyota Motor 119.7 Itochu 112.8 General Electric 111.6

By profits (billions of U.S. $)
Hutchison Whampoa 14.3 General Electric 10.7 Citigroup 10.1 Royal Dutch/Shell 8.6 Exxon Mobil 7.9 Bank of America 7.9 Microsoft 7.8 IBM 7.7 Philip Morris 7.7 Cheung Kong Holdings 7.6

By market value (billions of U.S. $)
General Electric 520.3 Intel 416.7 Cisco Systems 395.0 Microsoft 322.8 Exxon Mobil 289.9 Vodafone Airtouch 278.0 Wal-Mart 256.7 NTT 247.2 Nokia 242.2 Royal Dutch/Shell 213.5

Figure 9-2

Comparison of multinational corporations’ sales and the gross domestic product of selected nations

Economic objectives of antitrust laws
1) The protection and preservation of competition 2) To protect the consumer’s welfare by prohibiting deceptive and unfair business practices. 3) To protect small, independent business firms from the economic pressures exerted by big business competition. 4) To preserve the values and customs of small-town America.

Figure 9-3a

Major federal antitrust laws
Sherman Act Clayton Act Forbids restraint of trade and monopoly Forbids price discrimination, tying contracts, anticompetitive mergers, and interlocking directorates Forbids unfair competition and deceptive business practices Requires premerger notification and permits state suits on behalf of consumers against price fixing

Federal Trade Commission Act Antitrust Improvements Act

Figure 9-3b

Federal antitrust enforcement

Federal Trade Commission

Justice Department

Private Persons and Companies

State Attorneys General

Federal Courts

• Investigation • Guidelines • Advisory opinions • Informal settlements • Lawsuits

• Lawsuits

• Investigation • Consent decrees • Court opinions • Lawsuits and decisions

Key antitrust issues
Monopoly: • Does domination of an industry or a market by one or a few large corporations necessarily violate antitrust laws? • Critics claim that economic concentration can eliminate effective price competition, reduce consumer choices, inhibits innovation, and concentrates profits in too few hands. Others claim the opposite is true. Innovation: • Focus in antitrust policy. •In today’s economy, regulators have increasingly promoted competition to foster technological innovation. Thus, the rationale for bringing antitrust actions is to spur innovation in many cases. High technology business: • Economy has changed in the information age from when antitrust laws were crafted. • Are the basic principles of antitrust law applicable today?

Figure 9-4

Value of mergers and acquisitions, 1985-1999
1400 1200
Billions of dollars

1000 800 600 400 200 0 1985 1987 1989 1991 1993 1995 1997 1999
Year
Source: “M & S Profile” published annually by Mergers and Acquisitions.

Forces driven mergers in the 1990s and 2000s
Technological change: The need to keep ahead of advances in biotechnology drove many mergers in the pharmaceutical and chemical industries. Changes in the regulatory environment: Telecommunications deregulation led to a wave of mergers among long-distance phone companies, cable operators, and regional carriers. Mergers also resulted in anticipation of regulatory changes in the health care industry. Many financial services firms merged in response to changes in federal law. Globalization: Many companies found it difficult to compete on the world stage as a result of globalization and subsequently merged. Stock price appreciation: The long bull market of the late 1990s contributed to the merger wave.