Do Bigger Companies Lead to Small Paychecks?
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UPDATED: Jun 5, 2018
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Antitrust law in the US began with the Sherman Antitrust Act of 1890.
In the late 1800s, many industries were becoming increasingly consolidated. For example, hundreds of small, local railroads were combined into giant regional or national systems. John D. Rockefeller used threats against competitors and secret deals with railroads to monopolize the oil business.
Violating federal antitrust law can lead to both civil liability and criminal penalties.
Restraint of Trade
Section 1 of the Sherman Act states:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
As stated by the US Supreme Court,
The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.
The Act isn’t intended to punish success. As one of the co-authors of the Act stated,
[a person] who merely by superior skill and intelligence…got the whole business because nobody could do it as well as he could was not a monopolist..(but was if) it involved something like the use of means which made it impossible for other persons to engage in fair competition.
Because mergers of companies in the same industry can create monopolies, mergers are regulated by the federal government.
As the website for the Federal Trade Commission (FTC) states,
Many mergers benefit competition and consumers by allowing firms to operate more efficiently. But some mergers change market dynamics in ways that can lead to higher prices, fewer or lower-quality goods or services, or less innovation.
Another federal antitrust law, the Clayton Act, prohibits mergers and acquisitions when the effect “may be substantially to lessen competition, or to tend to create a monopoly.”
Every year, the FTC and the US Department of Justice review over a thousand filings for proposed mergers. Ninety-five percent of these raise no anti-competitive concerns.
T-Mobile and Sprint
One recent big merger was announced on April 29: T-Mobile and Sprint intend to merge, leaving the US with just three major wireless carriers instead of four, as the New York Times reported.
Although antitrust laws have usually focused on protecting consumers from excessive prices due to reduced competition, it turns out that mergers can have another negative impact on consumers.
As the Times noted,
A growing body of evidence has found that as mergers thin the ranks of businesses, workers have fewer options when they look for jobs. That reduces their bargaining power and, in turn, is part of why wages have stagnated.
It’s not clear how federal regulators will rule on the proposed T-Mobile-Sprint merger.