5.antitrust & Mergers

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Antitrust, Mergers, and Chapter Global Competition 9 Business and Society POST, LAWRENCE, WEBER

Figure 9-1

The 10 largest global corporations, 1999-2000 By sales (billions of U.S. $)

By profits (billions of U.S. $)

By market value (billions of U.S. $)

1

Exxon Mobil 185.5

Hutchison Whampoa 14.3

General Electric 520.3

2

General Motors 173.2

General Electric 10.7

Intel 416.7

3

Wal-Mart 166.8

Citigroup 10.1

Cisco Systems 395.0

4

Ford Motor 162.6

Royal Dutch/Shell 8.6

Microsoft 322.8

Daimler Chrysler 151.0 Mitsui 129.8 Mitsubishi 127.1 Toyota Motor 119.7

Exxon Mobil 7.9 Bank of America 7.9 Microsoft 7.8 IBM 7.7

Exxon Mobil 289.9 Vodafone Airtouch 278.0 Wal-Mart 256.7 NTT 247.2

Itochu 112.8 General Electric 111.6

Philip Morris 7.7 Cheung Kong Holdings 7.6

Nokia 242.2 Royal Dutch/Shell 213.5

Rank

5 6 7 8 9 10

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

Forbids restraint of trade and monopoly

Clayton Act

Forbids price discrimination, tying contracts, anticompetitive mergers, and interlocking directorates

Federal Trade Commission Act

Forbids unfair competition and deceptive business practices

Antitrust Improvements Act

Requires premerger notification and permits state suits on behalf of consumers against price fixing

Figure 9-3b

Federal antitrust enforcement

Federal Trade Commission

Justice Department

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

Private Persons and Companies

• Lawsuits

State Attorneys General

Federal Courts

• 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 Billions of dollars

1200 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.

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