Faculty Working Papers 
 
 COMPETITION POLICY IN OUR DEMOCRACY,— WHITHER? 
 
 E. T. Grether 
 
 #253 
 
 P. D. Converse Symposium Paper /M 
 
 College of Commerce and Business Administration 
 
 University of Illinois at Urbana-Champaign 
 
FACULTY WORKING PAPERS 
 College of Commerce and Business Administration 
 University of Illinois at Urbana-Champaign 
 Jum 13, 1975 
 
 COMPETITION POLICY IN OUR DEMOCRACY, —WHITHER? 
 
 E. T. Grether 
 
 #253 
 
 P. D. Converse Symposium Paper #4 
 
tJ-.J!> . 
 
» COMPETITION POLICY IN OUR DEMOCRACY,— WHITHER? 
 
 E. T. Grether 
 
 It is an honor and privilege to be able to extend and reinterpret my position 
 in M arketing and Public Policy and in general. In Marketing and Public Policy , 
 I depicted and interpreted the role of marketing in our narket-type society in 
 contrast to command-type societies directed by a central bureaucracy. This little 
 volume published in 1966 was preceded by a number of special studies of various 
 aspacts of competitive functioning and by some overall reviews that need not be 
 discussed here. I have been a close observer and researcher and participant in 
 the drama of competition in this country and elsewhere in the world for a little 
 V&--Q than half a century. I have had the opportunity of reporting upon my 
 researches and experiences in diverse publications and forums including the 
 American Marketing Association, the American Economic Association, the American 
 
 Ear Association, and now for the third time, — the Paul D. Converse Symposium at 
 
 2 
 
 the University of Illinois. 
 
 1 
 
 E. T. Grether, Marketing and Public Policy (Englewood Cliffs, New Jersey, 
 
 Prentice-Hall, Inc., 1966. 
 
 2 
 The publications since 1966 include: "Marketing and Public Policy: A 
 
 Contemporary View," Journal of Marketing , July 1974; "Competition Policy in the 
 
 United States — Looking Ahead," California Management Rev iew, Summer, 1974; 
 
 "Efficiency in Antitrust Resource Allocation," Journal of Contemporary Business , 
 
 Autumn, 1973; "Business Responsibility Toward the Market," California Man ag ement 
 
 Review, Fall, 1969; "The Environment and Integrity of Marketing and Public Policy: 
 
 An Overview," in Public Policy and Marketing Practices , ed. by Fred C. Allvine (1973) 
 
 "Industrial Organization: Past History and Future Problems," American Economic 
 
 Review, May 1970; "Impact of Government Upon the Market System," with R. J. 
 
 liolloway, Journal of Marketing , April 1967; "Pricing Practices and Antitrust," 
 
 Pri ces: Issues in Theory, Practice and Public Policy , ed. by A. Phillips and 
 
 0, L. Williamson, 1967". 
 
Digitized by the Internet Archive 
 
 in 2012 with funding from 
 
 University of Illinois Urbana-Champaign 
 
 http://www.archive.org/details/competitionpolic253gret 
 
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 Includcd In earlier papers were the two prepared for University of Illinois 
 Converse Symposia. The first paper 3 , published 21 years ago, presented a broad, 
 overall view of the regulation of competition. For the most part, the framework 
 of this analysis still seems satisfactory, but 1 wish to amend my position in 
 that paper in one important aspect in my discussion today. 4 
 
 The second paper was concerned with enterprise and product differentiation 
 an4 was incited by a paper by Professor Edward H. Chamberlin presented to the 
 previous Converse Symposium, and by the high importance of trading stamps, 
 give-aways and numerous other forms of gimmickry in American marketing at the 
 time. I had the honor of introducing Professor Chamberlin to the participants in 
 the symposium when he received the Converse Award, and of sharing a room with him 
 at the palatial Allerton House. In a section to come, I shall refer to the 
 current leading Federal Trade Commission test case in the area of product 
 differentiation, brand promotion and advertising. 
 
 U.S.A.: THE FIRST 100 YEARS 
 It seems appropriate to put the appraisal today in the perspective of our 
 national bicentennial celebration, particularly since Adam Smith's Wealth of 
 Nations also appeared in 1776. tfia United States of America became the magnificent 
 
 *nA n^ww 8 " 1 !!: 10 ? ° f ^J?** 1 * 101 " An Analysis of the Historical Development 
 and Outlook for the Future," in the Role and Karure of C ompetition in ., ^rketine 
 Economy, university of Illinois Bull etin, Vol. 51, So. 76 (June 1954), ed. ty 
 
 4 
 
 See page U. 
 
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 c&se example of the economic consequences of the transition from a society besed 
 on feudal status to one based on contract. The "tilth" that came along with the 
 increasing "wealth" was held to be more than offset, by benefits of the release 
 from the tyranny of the yokes of custom and of the fixed patterns of social 
 relationships. Decade by decade, over the years in this country as in 
 Western Europe, governments have endeavored to remove or relieve the more 
 deleterious consequences of unregulated competition while maintaining the basis 
 in freedom of contract, choice end enterprise. 
 
 During the first 100 years to 1976, our portion of the North American 
 continent was occupied in a tremendous demonstration of government facilitating 
 individual initiattve. The population tidal wave first rolled westward into the 
 Midvsst and great plains areas, then jumped to the West Coast during the Gold Rush 
 arA then rippled from both sides into the Rocky Mountain and northern plains areas, 
 Serais of this area had not even been incorporated into statehood by the end of the 
 first century, Montana, with its huge land mass, for example, was admitted to the 
 Union tdth its few inhabitants only in 1889. The speed and character of the 
 post Civil War rush were greatly affected by two important pieces of federal 
 legislation, both enacted in 1862; viz., the Homestead taw and the Land Grant Act. 
 In the first, small-scale land ownership in family holdings and enterprises was 
 underwritten ; in the second, public education in support of agricultural, 
 mechanical arts and other pursuits was subsidized. In retrospect, it is amazing 
 how many crucial national policy moves were made during the Civil War period at 
 the federal level. 
 
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 Once the issue of national political unity was settled by the Civil War, 
 economic unity was guaranteed through the railways, waterways, postal, telegraph 
 and other means of transportation and communication. The complex of trading and 
 of physical handling facilities which appeared at central transportation centers 
 end the organizing wholesale middlemen operating out of these centers, were the 
 media for Integrating the economic system. We were still essentially a rural 
 raw material producing economy and characteristically one of relatively 
 sraill-scale enterprises. But the creation of the economic opportunities in our 
 rich national and regional markets and of the integrating transportation, 
 corxaunication and trading facilities provided the basis for the extraordinarily 
 rapid development of larger scale business enterprises and of combines. 
 
 The agrarian and populist movements of the 1370*6 and 1880 's and into the 
 next century, reflected the strains and conflicts of the emergence of these 
 large-scale enterprises and combines with their Impacts upon agriculture and the 
 snail towns. The Interstate Commerce Act of 1887 and the Sherman Act of 1890 
 et the federal level represent the two initial efforts to relieve the economic 
 and political strains. 
 
 THE U.S.A. AT THE END OF THE SECOND 100 YEARS 
 The United States at the end of the second century is unbelievably different 
 from that of 1876. The most obvious transformation has been that away from a 
 dominantly agricultural economy and society to the world's greatest industrial 
 nation. Agriculture is no longer the seed bed of population growth and of 
 national values. Our population instead of being largely decentralized over 
 great space is now highly concentrated in metropolitan areas with their inner city 
 
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 i 
 
 i 
 
 centers and suburban rings. We are now much wore literate with the overage level 
 of education extending into the first year of college. Even more important » the 
 radio and television superimposed upon the means of corruunlcation at the end of 
 the previous century sensitize all of us daily to the entire world scene. 
 Probably the most significant social consequence of all has been the loss of the 
 rural industries and areas as great instruments for Individual therapy and social 
 
 i 
 
 shock absorption. For decades, people with personal problems tended to disappear 
 temporarily or permanently into the farms and ranches where they worked with 
 their hands , with animals and in close relationship with natural processes. 
 These outlets for the most part are no longer available among the small proportion 
 of our population engaged in agricultural pursuits, — and when they are, machines 
 powered by petroleum derivatives, here, too, have replaced hand work and animal 
 energy. There are more horses now in our metropolitan areas than in the farms 
 and ranches. Animals, as well as grain, forage and other crops, are raised and 
 handled by factory-type methods. The haying and harvest crews so characteristic 
 of yesteryear have been replaced by one man on an expensive piece of capital 
 equipment. Agriculture is now highly capital intensive instead of labor 
 intensive. 
 
 Nowadays our cities are teeming with youth often unemployed, who roam the 
 streets instead of doing the chores of the farm or participating in family 
 enterprises. It is no solution for small groups or communes to try to restore 
 the good old days except as they are fortunate enough to have trust funds left 
 to them by capitalistic parents or grandparents, allowing them the luxury of 
 inefficient methods of production. Much more realistic might be a major 
 decentralization of people and of non-farm industries into remaining great open 
 
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 cpnces so that the congestion In metropolitan areas might be relieved. It would 
 be exceedingly fortunate if all who so desire could own or have access to at least 
 a bit of land of their own. Or, as is still true, fortunately, for hundreds of 
 thousands, if all who wish, could operate their own personal or family small 
 businesses as independent entrepreneurs or practice their professions and 
 arts as self-employed or independent contractors. 
 
 OOMMDtl LAW ORIGIK OF OUR COMPETITION POLICY 
 Our national economic policy of competition in the United States bor' 
 institutionally and ideologically was transplanted from Western Europe, 
 especially Great Britain. The tenets of our competition policy came down 
 the channels of British Common Law. Its pattern and content emerged slowly, 
 case by case, precedent by precedent, as judges adjudicated among private 
 grievances. It came to us in terms of rules governing the restraints on trade 
 and of unfair practices among competitors. It took its form and substance out 
 ef the grievances arising in the petty trade so characteristic of our first 
 century, not those of modern great corporations and complex industrial society. 
 Its tenets insinuated themselves into our legal procedures in the Colonies and 
 in the States during the first century of our nationhood, and in federal law, 
 beginning with the Sherman Act in 1890. The Sherman Act was not considered to be 
 a radical statute since it basically incorporated the accepted common law 
 tradition. The opportunities in our advancing frontier and the inherent 
 individualism magnified both the acceptance and economic results of free 
 enterprise and freedom of choice and trade among small competitors. The common law 
 of restraint of trade and of unfair competition was almost made to order for this 
 
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 setting. And only later was our national policy focused upon the protection or 
 
 preservation of something called "competition" in an impersonal sense, instead of 
 
 "competitors". The gradual shift towards the preservation of "competition" was 
 
 paio-d 1 «>d b/ the development of the abstract formal body of economic analysis of 
 
 pure and perfect competition. That is, there was a shift from a stress on 
 
 competition or restraints of trade in personal rivalries to competition as an 
 
 i 
 
 abstract, impersonal force. 
 
 SHOULD THE SHERMAN ACT EE SCRAPPED? 
 
 Obviously, the question must arise concerning the validity and applicability 
 of our competition policy in its historical evolution as amended over the years 
 by the other statutes, the orders of administrative tribunals, and especially, 
 as interpreted in court decisions. I need not here review the statutes and 
 administrative and court actions, except to note that the totality is so complex 
 and often so confusing that only relatively few find it comprehensible. And, 
 if you are a litigant, either on the public or private side, you had better check 
 the qualifications of your legal and economic counsel very carefully, since there 
 are so few qualified generalists; instead there tend to be specialists by types 
 of statute or tribunal, or by type of action and so on and so on. Is our body 
 of laws governing competition which came to us down the common law channel, outmoded 
 in the United States as of 1975 with its great corporations, rapidly moving 
 technologies, and highly efficient, sensitive well nigh instantaneous data 
 collection and information systems? Only those of us who grew up in rural and 
 small town America can truly understand the startling differences a3 between 
 
 Cf. Mark S. Massel, Competition and Monopoly: Lepal and Economic Issues 
 (Washington, D.C.: The Brookings Institution, 1962). 
 
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 yesteryear and today. It is safe to predict that at some tine in the foreseeable 
 future there will be a demand for the repeal of the Sherman Act as outdated and 
 relatively irrelevant under present conditions. It might appear, at least 
 superficially, that giant and large and medium sized corporations, national and 
 multinational, would present problems that could not be adjudicated within the 
 bounds of common law precedents and conceptualizations derived out of the 
 grievances of petty trade and in terms of statutes and cases reflecting this 
 origin. 
 
 PIECEKTjq RKVISIOK, HOT SCRAPPING, PREFERABLE 
 But our present policies have enormous undergirding in the law of contracts 
 and agency in relation to the other related bodies of law and in public support. 
 Furthermore, they do allow for flexible adaptation and adjustment. Insofar as 
 revisions are desirable, it would seem preferable for them to be made to our 
 present body of law and regulation and not out of the wholesale junking of the 
 heritage of our past. There are enormous variations in internal organization, 
 managerial and decision making processes and procedures, and production processes 
 and in goals and objectives as between and among even the larger and giant 
 enterprises. We must be careful to allow for the appropriate expression of the 
 myriads of variations instead of trying to squeeze this enormous diversity into a 
 number of artificial homogeneous forms. 
 
 The slowly evolving common law approach had the inherent advantage of 
 flexible adjustments, case by case. Unfortunately, our legislators have tended 
 too readily and frequently to rush in pell mell with special rules and regulations 
 or jurisprudence to meet the demands of organized groups of constituents. Hence, 
 
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 i 
 
 competition in the traditional sense has been subverted and even sabotaged in 
 federal and state laws. Additional confusion has arisen out of the endeavors 
 in so-called hard core antitrust to force the analysis of competition into the 
 traditional partial equilibrium categories of economic analysis. The 
 identification of the "line of commerce" and of the so-called "relevant market" 
 have tended to become encumbered by a certain formalism and ritualism sometimes 
 very difficult to relate realistically to the conditions of some modem 
 enterprises and markets. The increasing aurber of private treble damage 
 actions have tended to accentuate this ritualism in the calculation of the 
 amounts of damages. Much of the nature and meaning of competition is lost when 
 the analysis is confined too narrowly or forced into the bounds of artificial 
 categories and definitions. Competition can be and should be adaptable to 
 national, regional and local variations in supply and deisand factors and to 
 organizational differences. 
 
 A year ago while traveling about Japan, I said to myself, "The Japanese 
 ought to bow down each day before the goddess of market coordination, — imagine 
 trying to direct all of these labyrinthal activities through a central 
 bureaucracy." 
 
 Above all, market competition guarantees the availability of choices among 
 genuine independent alternatives at all, or most levels of economic activity, but 
 especially at the consumer-buyer level. If such opportunities for choice disappear 
 in local markets, then they will be relatively meaningless in the voting 
 precincts. Just as the mores of cocmon law competition insinuated themselves into 
 our economic way of life in this country, so could those of non-tnarket forma of 
 economic organization almost imperceptibly replace market competition, and in fact 
 may be doing so. Although market competition is still the preferred way of economic 
 
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 organization in this country it no longer is considered to be the only vay. 
 And many are looking hopefully to the expansion of non-market forms of 
 organization. 
 
 THE WIDESPRrjU) DISTRUST OF GREAT BUREAUCRACIES 
 It is trite nowadays to state that distrust with respect to all large 
 bureaucracies is widespread, in fact, rampant in the United States, — whether 
 federal, state, private, organized labor, educational — or what! The recent and 
 current ecological, conservationist, consumeristic and so on expressions are not 
 superficial passing phenomena. One of the most basic social issues of our times 
 is the maintenance of access to nature's bounty in land, water and air together 
 with opportunities for the exercise of creative talents in business, professional, 
 artistic or other pursuits. 
 
 Undoubtedly, there will continue to be a sharp cleavage as between the forces 
 of the right or so-called conservatives, and left, so-called liberals and 
 progressives, with pockets of sharper division outside these groups. The forces 
 on the "right" will continue to call upon the representatives of the great private 
 bureaucracies to whip the public bureaucracies "into better shape". The forces 
 on the left will tend to overemphasize the role and contribution of the government 
 and will tend to call upon government at all levels to whip the private 
 bureaucracies into better shape. Standing outside will be the critics of both 
 bureaucracies who would like to whip both the public and private bureaucracies into 
 better shape in accordance with their particular political and social ideologies and 
 objectives. 
 
 Cf. Corwin D. Edwards, "The Future of Competition Policy: A World View," 
 California Management Review. Summer 1974, Vol, XVI, Ho. 4, pp. 112-126. 
 
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 YIIE SHIFT TO MORE POSITIVE REGULATION 
 And this now brings me to the shift in ray own position as stated in ray first 
 paper before an Illinois symposium and elsewhere. It has been ray consistent view 
 that it should be possible to maintain and/or restore a sufficiently acceptable 
 level of effective market competition in general and in particular situations, 
 that would be preferable usually to alternatives, especially to non-market 
 alternatives. I still hold this view, with an exception for the solution of some 
 conservationist-ecological problems, which will require some expansion of 
 governmental programs and regulation. 
 
 In my earlier view, I contended that the tests of acceptable competition should 
 not involve evidences of economic and social performance except as these were 
 essential to demonstrate that the enterprise was in free or acceptably active 
 competition under existing laws. Enforcement should be directed at maintaining, 
 preserving and restoring competition instead of requiring specific affirmative 
 actions and evidences of economic and social performance. In other words, the 
 maintenance of competition would be largely in terms of "Thou shalt note" instead 
 of the "Thou shalts". It is much simpler and clearer to enforce "Thou shalt not 
 steal" than "Honor thy father and thy mother". 
 
 It was my view that American business should and would prefer, if necessary, 
 to accept structural or other changes essential to maintaining acceptably active 
 competition instead of enforcement in terms of the full tests of economic and 
 
 7 
 See above, page 2. 
 
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 social performance. For one thing, our courts are ill-equipped to handle cases 
 involving such voluminous and complex materials. Consequently, there would be 
 inordinate delays or even a breakdown of legal procedures. For another, such 
 actions could and would undoubtedly set the stage for the detailed regulation 
 of business, especially of large diversified corporations, by government. 
 The result could and most likely would be to transfer a larger proportion of 
 
 Q 
 
 business enterprises into public-utility and quasi-public utility status with 
 highly uncertain results in terms of their own interests and those of the public 
 welfare. 
 
 But the record in recent years, especially in court cases, and in the 
 policies of some of our great corporate entities under advice of counsel, makes it 
 necessary now to yield on this position. The facts of life in the enforcement 
 of antitrust are that corporate executives increasingly are being deposed and 
 are appearing in courts to explain business decisions and practices. Inevitably, 
 performance results are brought into evidence to interpret and defend the 
 decisions and practices. Apparently in many instances top management and counsel 
 prefer to present evidences of "social responsibility" and social performance to 
 those of effective competition. Consequently, as expected, legal actions are 
 becoming much more complex and require an entire litany of pretrial hearings, 
 stipulations, pretrial briefs, trial briefs, reply briefs, mammoth collections of 
 documents, hundreds of exhibits, and so on, including even the employment of experts 
 by the court to protect the health and sanity of the judges and the sanctity of 
 the final outcome. Possibly, we will have to establish special courts with 
 
 Q 
 
 See the proposals of Gardiner C. Means in Pricing Power and the Public 
 Interes t (Kew York: Harper & Brothers, 1962) .'or a new category of "collective 
 enterprises". 
 
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 9 
 expertise to handle these cases as proposed by KayBen and Turner. In any event, 
 
 it is little ronder that cases are subject to delays and are settled without 
 
 going to full trial; if, for no other reason, than to stop the enormous expenses 
 
 of litigation, let alone, the even larger risks of treble damage actions following 
 
 an unfavorable verdict. 
 
 LEARNING PROCESSUS OF ADVERSARY PlflCEDURES 
 But it appears under present conditions and those of the foreseeable future, 
 we shall continue with these very important and costly learning processes through 
 adversary procedures. These procedures could be most helpful in the important 
 areas of oligopoly and diversification and conglomeration. The interpretation 
 of oligopolistic behavior with interdependence recognized is most difficult 
 for courts especially in cases of alleged price and other agreements. And there 
 is no simple or single solution because even so-called oligopolistic industry 
 and market structures can be exceedingly complex and diverse. Hence, it can be 
 exceedingly laborious to prepare the record for the defense or for the discovery 
 requests. This is particularly true of price data broken dewn by product and 
 brand variations and by vertical and geographical sub-market segments. Finally, 
 the record must be interpreted and explained or if you wish, rationalized by 
 relating the course and pattern of prices, say, to the basic economic conditions 
 and trends and to competition, — in the setting of the market action, or market 
 structures. And the data must be collected from internal records, manipulated and 
 interpreted by product lines and brands, and by geographical sub-markets. 
 Almost never can census or other published data be definitive or even used, — which 
 may tell us something about the significance of the studies based on such published 
 data. In the presence of numerous grades and quality levels and of brand 
 
 9 
 
 Carl Kaysen and D. F. Turner, Antitrust Policy: An Economic and Le^al Analysis 
 
 (Cambridge: harvard, 1959), p. 254. 
 
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 differentiation, it may be necessary for all parties to agree upon a given grade 
 or brand or some other sampling procedure as the basis for analysis. 
 
 In many instances the internal records vill not have been kept in a manner 
 appropriate to the questions at issue. Consequently, special after the fact runs 
 Kill have to be made, or reconstructed. In all instances and situations. In the 
 background ore the executives, top level or production and market level, 
 responsible for the original decisions and practices. Many of these executives, 
 perhaps typically so, have never envisaged the type of situation in which their 
 actions must be explained under oath before a court. Hence, they are literally 
 in the hands of their legal counsel. 
 
 Inevitably, therefore, even though the issues are largely managerial and 
 economic, the lawyer occupies the strategic point in the legal action. Much, 
 perhaps everything, will depend upon his legal and economic insights and experience 
 and judgment in the perspective of the precedents of this type of case. Something, 
 too, will depend upon the wisdom and expertise of economic counsel. But the lawyer 
 is in charge and occupies the critical focal point as between the management and 
 the governmental agency and the courtroom. The nature and quality of the outcome 
 in adversary learning procedures is mightily dependent upon the wisdom, advice 
 and guidance of the legal counsel and of the judges hearing the pleadings. 
 
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 THE GOOD AN7) BAD HEWS 
 
 If the present state-of-af fairs continues, — and there is nothing in the 
 
 < 
 immediate outlook to suggest to the contrary, business enterprises, especially 
 
 large, Cuuplex corporations, must include the possibility of explaining and 
 
 justifying basic decisions before administrative tribunals and courts as a regular 
 
 and continuing part of their planning and operating procedures. This could have a 
 
 sobering, salutary impact upon business management and their legal counsel which, 
 
 hopefully, would be beneficial. This may be the good news . 
 
 The bad news might be that federal and state regulatory agencies enforcing 
 competition policy may be expected to provide guidelines and other criteria for 
 business management either in terms of the traditional negatives or the "thou 
 shalt nots," or through specific affirmative requirements. Inevitably, there would 
 have to be closer, nonadversary working relations between business and government. 
 Most likely, almost imperceptibly, large corporations would be moving into 
 quasi-public utility status, — and even more so, ultimately, into the Galbraithiaa 
 complex of public-private enterprise in which market mechanisms would have only 
 residual regulative roles. 
 
 There seems to be a rising crescendo in favor of closer, nonadversary working 
 relations between government and business in this country, but not in the setting 
 just depicted. Often the practices and experience in Japan are cited in support. 
 But one must be very careful about generalizing about competition policies across 
 national boundaries. There are always marked differences in historical evolution, 
 legal systems, resource patterns and uses, national characteristics and traits, 
 etc., that affect the nature of an acceptable national policy. The differences as 
 between the United States and Japan are marked indeed. The mix of competition and 
 cooperation appropriate to Japan is not at all necessarily the pattern for us, and 
 vice versa. 
 
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 But what should be the nature of the cooperative or adversary relations in 
 this country? Certainly the drift in this country suggests r«orc effective 
 cooperation between business and government beyond the traditional facilitating 
 aids. For years some business leaders have held the French model of indicative 
 
 planning as between Big Government and Big Business in high esteem. But here, 
 
 9 s 
 
 too, there arc marked differences as between France and the U.S.A. 
 
 I We need neither a Japanese nor a French or other approach borrowed from 
 
 abroad, — not even one from Saudi-Arabia, — but our own American one appropriate 
 
 to our own history, laws, and especially to the tenets of our Democracy as 
 
 applied to our modern, restless urbanized and industrialized society. Given tine, 
 
 and in the absence of great crises, our approach should arise out of and take 
 
 its form and substance from the adjustments and precedents arising out of 
 
 strategic court cases and not out of wholesale endeavors by new legislation. 
 
 In my view the present IBM case and the F.T.C. action in the Ready To Eat 
 
 (RTE) or breakfast cereals case are of this strategic character. The ITT case 
 
 and others on the way up in 1969 also were of this character; hence, the ITT 
 
 settlements without full trial slowed down the judicial interpretation of the 
 
 1950 Merger Law. I hope that the current cases may go through full trial. 
 
 o 
 
 Cf. J. II. KcArthur and Bruce R. Scott, Industrial Planning in France (Boston, 
 
 Graduate School of Business Administration, Harvard, 1969). 
 
 United States of America v. International business y-ichir-'S Corporatio n, 
 Southern District of liew York; in re Kellogg Company, ec al. (January 15, 19/2). 
 
 For details, see "Efficiency in Antitrust Resource Allocation," footnote 2 
 above, and citatious therein. 
 

 
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 The outcome could be most strategic in bringing our law of competition into the 
 modern "Great Society" in contrast with that of Adam Smith, who, it is vorth 
 noting, coined this phrase as well as "the invisible hand," so greatly 
 overerphasized by the commentaries over the. years. The IBM case and attendant 
 private actions are test3 not only of the law of competition in general but more 
 specifically in relation to the developments in the highly important areas of 
 data and information processing and the complex of industries and services that 
 may well play the same roles in the decades ahead in our economy and society 
 as the automobile in the half century behind us* 
 
 In the meantime the very recent AT&T case broadens the basis of the action 
 to telecommunications industries and services in general and to the role and 
 consequences of the public utility and quasi-public utility status and of the 
 interrelations among plants. 
 
 The RTE cereals case should help establish the tenets of law and regulation 
 and of practices in the important areas of differentiated oligopoly and product 
 and brand development and brand promotion and advertising. It is well to remember 
 that trademarking and brand promotion are to some extent mandatory under our 
 per fie rules against agreements and cartels. Enterprises are forced to go it alone 
 instead of joining the wolf pack. Hence, the RTH case should help establish the 
 rules for product development and brand promotion and advertising so characteristic 
 of American marketing. 
 
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 In these and other case;;, too, we will continue the learning processes with 
 respect to the reasonable distinctions and boundaries as between prohibited overt 
 
 > 
 
 agreement and acceptable tacit behavior or the conscious parallelism of competition 
 
 b*»we*n t!.s faw with high or substantial recognition of interdependence, without 
 
 overt agreement. It is of utmost importance for the precedents to emerge in this 
 
 great area. 
 
 It is common, perhaps general, for American corporations to enunciate to all 
 
 employees the shalt nots essential for compliance with antitrust laws. Tt should 
 
 be possible also with some degree of assurance to enunciate the framework of a 
 
 positive pro-competition policy as suggested by the distinguished members of the 
 
 Westinghouse Board of Advice following the electrical cases, viz.: 
 
 "...the corporation's problem in relation to the antitrust laws should not 
 be regarded as solely, or even, primarily, the negative task of issuing and 
 policing strict instructions against overt collusion... More broadly, the 
 Corporation's business success in the future, will depend to a considerable 
 degree on the adoption by the Corporation of policies of vigorous (and even 
 aggressive) flexiLle, competitive initiative appropriate to the nature of 
 the electrical Industry and to the structure of the r.nny product markets 
 in which th? corporation sells... " 12 (italics adaed) . 
 
 THE LARGE CORPORATION AND MARKET STRUCTURE ANALYSTS 
 This advice raises two broad sets of issues in terms of the internal organisation 
 and policies of enterprises. First, is the extent to which a large established 
 corporation can successfully pursue a "vigorous and even aggressive" set of 
 policies and practices in all its markets under our laws affecting competition, 
 especially in the face of the increasing number of private actions. Second, and 
 
 12 
 
 A Report From the Board of Advice to Westinghou^e Electric Corporation, 
 
 1962, p. 10. 
 
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 j 
 closely related, Is the adjustment to and rationalization of such competitive 
 
 policies and initiatives to the nature of the industry and the structure of the 
 
 many product markets in which firms operate. 
 
 The key to the future in terms of the maintenance of a viable competition 
 
 policy nay well he in these two issues and especially in the second. Let us 
 
 recall, that competition policy in the common law tradition was highly 
 
 i 
 
 individual, — case by case, and not conceived in terns of an abstract, impersonal 
 force. Competition appropriate to the nature of an industry and the structure 
 of product markets can and should reflect the special factors, circumstances, 
 organization and supply and demand relations of each market down to the lowest 
 definable geographical sub-market. The worst thing that could possibly happen to 
 our national competition policy would be to try to squeeze it into a single or 
 simple national mold or pattern. From this standpoint the formal economics of 
 pure and perfect competition hac done an enormous disservice to a rational and 
 realistic competition policy. Let me repeat, — competition in being is and must 
 be highly variable, — else it is not worth preserving! 
 
 This means merely and simply that the expressions and manifestations of 
 competition must be and should be appraised not in terms of the hypothetical 
 standards of models of formal, impersonal competition but in the perspective of 
 the facts of the particular market setting, — i.e., the setting of the market 
 action — and the important historical and other circumstances and events in the 
 industry and product markets. Now all of this may have been simple enough 
 yesteryear under the conditions of petty trade in local markets backed up by 
 inter-market organization and mechanism. But what about the world of the great 
 diversified corporation, national and multi-national? 
 
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 The large corporation or any business enterprise for that matter, should 
 not be looked at or interpreted as a monolithic entity. The same observation 
 applies also to government and public enterprises* Unfortunately, either because 
 of overly effective public relations programs or of the publication only of 
 combined earnings and balance sheet figures in annual reports, or because of the 
 inherent human tendency to symbolize, great corporations are viewed as GM, and 
 IBM and AT&T, IT&T, CE, and so on, and in terms of monumental headquarters 
 buildings and a small number of top executives and directors with large emoluments 
 and the perquisites and trappings of high office. 
 
 We may recall historically that ordinary human beings when put on thrones with 
 crowns and sceptres and housed in palaces become endowed with divine rights! In 
 terms of our National Bicentennial we should recall, too, the sharp conflict 
 between those who wished to place the regalia of royalty upon George Washington. 
 
 And this effort might have succeeded except for the strong opposition of one 
 
 13 
 
 insistent commoner who spoke in the name of "republicanism" not of democracy! 
 
 The top management of great corporations and of the larce governmental agencies 
 nowadays complain about the misinterpretations and lack of understanding of the 
 workings and performance of their enterprises. The corporate managers are 
 particularly concerned about our economic illiteracy concerning the workings and 
 results of the system of competitive enterprise. It would seem reasonable, therefore 
 to emphasise and demonstrate the workings of both public and private bureaucracies 
 at the grass roots level of the individual citizen and customer and supplier. 
 
 13 
 
 See The Journal of William Knday (with Introduction by Charles A. Beard). 
 
 (New York: Albert and Charles Boni, 1927). 
 
-21- 
 
 So far as the private corporation is concerned in its competitive marketing 
 policies and programs, this could be done in part through market structure analysis, 
 product by product, division by division, market by market. Yet, unfortunately, 
 *»*c"« MM&t!.-.? structure analysis increasingly is criticized because it allegedly 
 represents an attack upon great corporations and upon size and concentration as 
 such. It is alleged to be an instrument for the deconcentration of American 
 industry. This position is based to some degree upon the large number of research 
 studies and polemical literature relating to both economic (aggregate), industry 
 and market concentration in this country. 
 
 To some extent, there has been an overemphasis and simplistic use of 
 concentration measures and of their significance. Some analysts, even, feel 
 that public policy decisions could be made almost mechanically in terms of 
 concentration indices of which there are now a considerable variety. 
 
 This whole area of analysis has attracted the attention and interests 
 of some very able researchers. In reaction, recently a sizeable research and 
 polemical literature in defense of industry concentration is arising. The more 
 ardent members in both groups, insofar as they can be categorized, join hands as 
 vigorous proponents of competition. One the one hand, deconcentration is urged 
 in order to restore and enhance the compulsions and discipline of the market and 
 to reduce "market power". On the other hand, the large corporation in oligopolistic 
 competition in our complex industrial society is praised because it "tends to achieve 
 
 the competitive prices and rates o£ profit that the old classical model of 
 
 14 
 'atomistic' competition was supposed to achieve." The "Industrial Reorganization 
 
 14 
 
 Neil H. Jacoby, "Antitrust or Pro-Competition? 1 ' California Management Revi ew, 
 
 Summer 1974, Vol. XVI, Ho. 4, p. 56. Dean Jacoby takes a very strong nro-corpetitio; 
 
 stand including a recommendation for the creation of an Office o£ Competition within 
 
 the Executive Office of the President or an Independent Competition Commission. 
 
-22- 
 
 Act" Introduced by Senator Philip A. Hart Is serving as a catalytic agent in 
 
 focusing the polemics as between the deconcentrat ion -market power group and those 
 
 15 
 who defend concentration and enterprises in oligopolistic competition. 
 
 In any event, the polemics clearly support the learning processes under way 
 in strategic court cases. Hopefully, we shall have the time for these processes 
 to continue, including the improving and interpreting of data illuminating the 
 ways in which competition works locally, regionally, nationally and world-wide. 
 
 Now this is not nearly as horrendous as it sounds. Large corporations for 
 internal organizational planning and control purposes usually do prepare such 
 decentralized data and use them both in planning and in operations. Hundreds of 
 American firms patronize services that give them a running record of market share 
 positions by brands and by geographical territories. There tend also to be 
 product and brand managers and territorial divisions and breakdowns. Always, 
 there is knowledge of and awareness of actual and potential competition. Almost 
 all business enterprises are doing market structure analysis, formally or 
 informally, for their own planning and control purposes, without calling it such. 
 
 Undoubtedly, however, the market structure analysis as used in antitrust 
 enforcement, coupled more recently with the requests by the S.E.C. and F.T.C. 
 for product line or lines of business reporting, has served for the time being 
 to bring the governmental agencies and business into even sharper adversary 
 positions. Is this necessary or desirable? To the contrary, this whole issue 
 
 For the pros and cons, see Lee E. Preston, "Is It Timely for Industrial 
 Reorganization?" California Manage ment Kevlow, Summer 1974, Vol. XVI, No. 4, 
 pp. 68-80. For a collection of essays defending concentration and critical of some 
 widely accepted economic literature, especially the theory of monopolistic competition 
 of Edward 11. Chamberlin, see Yale Brozen, The Competitive Economy , Vol. I (Cencral 
 Learning, 1974) and the forthcoming Vol. II. 
 
-23- 
 
 could become a means for resolving differences and for establishing better working 
 relationships. This is an area in which a dialogue between business and 
 government could be exceedingly useful to all parties. For one thing the matter of 
 the character and applicability of data that should be provided should be 
 resolved. This will require a large amount of serious, intelligent effort on 
 the part of qualified experts. For another, it should be possible for business to 
 
 i 
 
 indicate whether and how its interests would be served or harmed by the provision 
 of such data. 
 
 It would appear that such data should not be injurious,— in fact to the 
 contrary, unless the deep pocket, cross-subsidization, reciprocity and artificial 
 transfer prices are important in internal planning and management. I have long 
 held that these practices tend to be overemphasized by the critics of business. 
 If I am right, then, in the main, there is nothing to lose by preparing such data 
 and by disclosure. 
 
 It could be enormously heartening to local and regional competitors to be 
 assured that their national competitors are not subsidizing their local dealers 
 or other outlets through unfair methods derived out of size and diversity alone. 
 Very likely punitive local treble damage actions might be forestalled. Furthermore, 
 time and again, internal organization and planning and controls might be improved, 
 especially if there is the awareness of the possible necessity of explaining the 
 policies and practices in local markets as acceptably pro-competitive. But most 
 important of all, in terms of our competition policy, much of the mystery would be 
 
 16 
 
 Cf. the analysis and suggestions of Betty Bock, in Hue of Business Repor ting: 
 
 Problems in the Formulation of a Data Program (The Conference Board, November 1974). 
 

 
-24- 
 
 taken out of corporate operations including the suspicions and misconceptions - 
 arising out of the monolithic image. 
 
 Along these lines business and government night learn to vork together in 
 support of a realistic and acceptable competition policy, understood and supported 
 at the grass roots levels of consumer and dealer buyers and in the purchase of 
 supplies and equipment. A basic tenet of our competition policy should be the 
 maintenance of the opportunities for choices among independent alternatives 
 at all levels, except when substantial economies of scale or better quality 
 service would be sacrificed. Such choice should be available also as between 
 public and private services whenever feasible. 
 
 A CAVEAT VTCTH RSSPKCT TO ENTERPRISE DIFFERENTIATION' 
 Just as product differentiation can be real or fancied, so with enterprise 
 differentiation. Basic enterprise differentiation is supported solidly in 
 innovative product development and differentiation, and services and methods of 
 operation, and/or in the planned, managed and coordinated diversification of 
 products, functions and market levels. The public imagery and symbolism of such 
 enterprises might appear to be the same as for, say, pure investment conglomerates, 
 but the footing and hence the meaning would be quite different. Baric enterprise 
 differentiation could become the source for some amount of patronage sometimes 
 characterized as "monopoly thrust upon the firm". 
 
 Investment conglomerates are readily subject to market structure analysis,— unit 
 by unit, division by division. But the units under planned and coordinated 
 diversification intended to optimize the benefits of mutual reinforcement (synergy) 
 might not lend themselves to simple, clear structural analysis. Even so, one should 
 always begin in this way on a flexible basis, if for no other reason than to 
 
-25- 
 
 highlight the problem areas for further analysis. Too little is known as yet ; 
 about all of this in the manufacturing industries. Certainly, in some cases, 
 the presence of combinatorial benefits and of systemic processes vith hi*h joint 
 costs, make simple discrete analysis difficult or even meaningless. It would 
 seem likely, however, that eventually relatively similar types of enterprises 
 would appear in competition and these would, at least, to begin with, be the 
 units for market structure analysis. This occurred in the traditional wholesale 
 and retail trades in which assortments were influenced by the interdependencies of 
 demands. Enterprises with similar assortments became recognizable competitors, 
 often under oligopolistic competition. More recently, the developments in the 
 supermarket area have followed the same course, — but with variations. 
 
 As yet, we have too little solid evidence concerning the nature and benefits 
 of planned synergy in .American manufacturing industries. Unfortunately, the 
 stock market experience with the conglomerates which allegedly possessed this 
 mysterious alchemy has cast a shadow over this type of conceptualization, except 
 in some of the trade press. It is alleged that some Japanese enterprises are 
 organized and managed along these lines. But, so far, no research evidence has 
 appeared. In any event, the conjoined learning processes in adversary procedures 
 and In discussions of segmented and product line reporting, may be expected to 
 Illuminate this area. 
 
-26- 
 
 A FINAL OnSF.KVATIO:? 
 In conclusion, I quote from Marketing a nd Public Polic y: 
 
 "It should be feasible, however, in an educated, literate democracy 
 to work out and maintain the appropriate relations and balance between 
 the political forces, — law and regulation — and the inherent forces of 
 the 'rule of competition'. Unless such a balance can be maintained, 
 then the society must be prepared step by step to sacrifice the basic 
 values and efficiencies associated with genuine freedom of choice by 
 consumers and freedom of enterprise in production and marketing. . .the 
 maintenance of an appropriate balance in a society with a firm 
 commitment to the preservation of a private enterprise base should be 
 much simpler than the achievement and maintenance of micro-balance 
 in a command 'society'." 
 
 Op. cit., p. 102; 6ee also Gregory Grossman, "Notes for a Theory of the 
 Command Economy," Soviet Studies, Vol. XV , Ko. 2, October 1963. 
 
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