INJUNCTIVE RELIEF IN SHERMAN ACT MONOPOLIZATION CASES

Pages277-344
Publication Date01 July 2004
DOIhttps://doi.org/10.1016/S0193-5895(04)21005-3
Date01 July 2004
AuthorRobert W Crandall,Kenneth G Elzinga
INJUNCTIVE RELIEF IN SHERMAN
ACT MONOPOLIZATION CASES
Robert W. Crandall and Kenneth G. Elzinga
ABSTRACT
While the popular image of the Sherman Act is that of a “trust-busting”
statute, conduct remedies have been more common than structural relief.
This paper evaluates the effect on economic welfare of conduct remedies
that have resulted from ten prominent Sherman Act monopolization cases.
In general, we find that in some cases the behavioral relief has had no
consequence other than the cost of litigation and cost of compliance; in other
cases, the remedies probably reduced consumer welfare. Cases studied are
United Shoe Machinery, AT&T, Std. Oil of California, IBM, United Fruit,
Kodak, Safeway, GM, Jerrold, and Blue Chip Stamp.
1. INTRODUCTION
In antitrust’s division of labor, lawyers care a great deal about who wins and
who loses cases and why. Economists are not disinterested in these matters, but
they care as much if not more about what happens after an antitrust case has
been decided or settled. Economists ask: what are the benefits and costs of the
antitrust remedy?
The primary objective of any antitrust remedy is to halt the defendant’s
anticompetitive behavior so consumers can enjoy the benefits of competition. The
bottom line of any assessment of the effects of an antitrust remedy should be its
Antitrust Law and Economics
Research in Law and Economics, Volume21, 277–344
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(04)21005-3
277
278 ROBERT W. CRANDALL AND KENNETH G. ELZINGA
effect on consumer welfare.1In the entire corpus of antitrust scholarship, only a
small portion has been concerned with the “back end” of antitrust enforcement.2
Some of this attention has been devoted to structural relief. Elzinga (1969) offered
the first economic assessment of divestiture under the amended antimerger law.3
This assessment was updated by a study from the Federal Trade Commission
(1999).4More recently, Crandall (2001) presented a critical empirical assessment
of Sherman Act structural remedies.
While the popular image of the Sherman Act is that of a “trust-busting” statute,
conduct remedies have been more common than structural remedies. This paper
evaluates the effect on economic welfare of conduct remedies that have resulted
from a sample of Sherman Act monopolization cases.
2. GOVERNMENT VICTORIES IN
MONOPOLIZATION CASES
In more than 100 years of enforcing the Sherman Act, the U.S. Department of
Justice (DOJ) has succeeded in monopolization cases on 426 occasions, either by
obtaining a court verdict against the defendant(s) or a negotiated consent decree.
In a few cases, structural relief-such as divestiture-has been the result. In most,
however,the government has obtained injunctive relief, requiring various changes
in the defendants’ conduct. In many cases, these remedies involve the prohibition
of price fixing or market division, but others involve an attempt by the government
to alter the defendant’s conduct, presumably to eliminate anticompetitive conduct
and to allow the market to evolve towards a more competitive structure.
Of the 423 monopolization cases that the government has either won or entered
into a consent decree with the defendant(s) and for which documentation could
be found,587 were criminal cases and 336 were civil cases. All 87 criminal
cases resulted in fines. Of the remedies that resulted from the 336 civil cases, 172
were injunctive or conduct remedies (51.2%), 69 required compulsory licensing
(20.5%), and 95 were structural remedies (28.3%).6Our research universe in this
paper is the 172 cases that resulted in conduct remedies.
From these 172 cases, we have chosen ten for careful analysis. This is not a
random sample, but rather reflects the importance of the case; each represents a
major DOJ effort to use Section 2 of the Sherman Act to affect a substantial sector
of the U.S. economy, such as grocery retailing, gasoline distribution, telecom-
munications, or data processing. Early cases involving small companies that
have long since disappeared, such as United States v. Lay Fish Company (1926),
are ignored. Also ignored are the many conspiracy cases brought under both
Sections 1 and 2 of the Sherman Act that resulted in an injunction dissolving the
Injunctive Relief in Sherman Act Monopolization Cases 279
cartel or barring future conspiracies. We also were influenced by the availability
of data that would permit us to assess the consequences of the remedy. Conduct
remedies for the following monopolization cases are studied in detail:7
(1) United States v. United Shoe Machinery, 1947.
(2) United States v. AT&T, 1949.
(3) United States v. Standard Oil Co. of California, 1949.
(4) United States v. International Business Machines, 1952.
(5) United States v. United Fruit Co., 1954.
(6) United States v. Eastman Kodak Co., 1954.
(7) United States v. Safeway Stores Inc. et al., 1955.
(8) United States v. General Motors Corp., 1956.
(9) United States v. Jerrold Electronics Corp. et al., 1957.
(10) United States v. Blue Chip Stamp Co. et al., 1963.
3. THE CASE STUDIES
In each of the cases selected, we examine the available evidence that would assist
us in determining whether the government’s conduct remedy affected market
performance in a manner that increased consumer welfare. Given the passage
of time and incomplete data availability, it is no easy task to reach a dispositive
evaluation of each of the ten cases in our sample. But if government antitrust
remedies have favorable consequences for consumers, there should be some
evidence of changes in output or prices of the relevant products or services.
Complex behavioral remedies may also require the expenditure of substantial
resources by the government and the defendants. These costs should, in principle,
be deducted from the consumer gains, if any, that accrue from the relief.8
3.1. United Shoe Machinery9
United States v. United Shoe Machinery is the earliest case selected. United
Shoe Machinery Corp. (USM) began operations in 1899 with the acquisition
of five shoe machinery manufacturers, three of which were dominant sellers in
their segment of the industry (Kaysen, 1956, p. 6). These acquisitions provided
USM with a prominent position in the major segments of shoe machinery
manufacturing. The company grew rapidly thereafter, making several additional
acquisitions, and it eventually centralized its manufacturingoperations in one plant
in Massachusetts.10

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