Anti-Trust Laws 18577 Essay Example

to prohibit them. The Maryland State Constitution of 1776 explicitly stated that monopolies are despised as they contradict the principles of a free government and should be outlawed.

The Sherman Antitrust Act, which was enacted in 1890 with the support of President Benjamin Harrison, aimed to restrict the expansion of monopolies. This law, authored by John Sherman, a lawyer and senator from Ohio, sought to prevent business alliances from obstructing trade or commerce. Individuals who violated this act were subject to a fine of $5,000 and/or imprisonment for a maximum of one year. Regrettably, the legislation did not succeed in accomplishing its intended objectives.

Despite its good intentions, the Act failed to effectively accomplish its objectives and instead became an inconsistent approach in breaking up the monopolies held by "big business". Chief Justice Stone provides a portrayal of the limitations of the Act.

"The Sherman Act does not provide precise definitions or crystal clear prohibitions. Instead, it leaves the courts with the task of interpreting and applying its language. This vagueness, perhaps intentional, allows the courts to consider the legislative history and the specific problems that the Act aims to address."

Ultimately, the consensus was that almost everyone wanted to ban monopolies and establish competition. However, it was also acknowledged that the Act raised various unresolved issues for future contemplation. Therefore, while serving as the initial legislation, the Act was merely the initial phase in a comprehensive process of competition regulation.

The Clayton Antitrust Act, passed in 1914 as an amendment to the Sherman Antitrust Act of 1890, included various provisions targeting specific business practices. These practices encompassed exclusive sales contracts, price cutting aimed at eliminating competitors, rebates, interlocking directorates

within corporations with a capital exceeding $1 million in the same industry, and intercorporate stock holdings. However, labor unions and agricultural cooperatives were exempt from these restrictions. The act also placed limits on injunctions against labor activities and made peaceful strikes, picketing, and boycotts legal. Furthermore, it explicitly stated that human labor should not be treated as a commodity. This implementation resulted in numerous high-profile lawsuits against large corporations. Subsequent amendments were introduced to strengthen provisions regarding unfair price cutting (1936) and intercorporate stock holdings (1950).The Federal Trade Commission (FTC) is a government agency in the United States that was established in 1915 with the goal of promoting fair and free competition within American businesses. However, it does not have jurisdiction over banks and common carriers, as these are regulated by other government agencies. The FTC is composed of five members who are appointed by the President and confirmed by the Senate for seven-year terms. Its creation was part of President Wilson's efforts to prevent monopolies and maintain competition as an essential element of business regulation.The main tasks of the FTC involve enforcing antitrust laws, promoting fair competition, and preventing misleading advertising for different products. Additionally, the FTC investigates business practices and informs Congress and the public about the effectiveness of current antitrust legislation while identifying potential areas that may require additional legislative action.

The Federal Trade Commission (FTC) is responsible for enforcing laws related to preventing unfair competition and false advertising. These laws are stated in the Federal Trade Commission Act of 1914 and the Wheeler-Lea Act of 1938. The FTC also administers regulations on various business practices such as tying contracts, exclusive dealing contracts,

stock acquisition, interlocking directorates, and price discrimination. These regulations are outlined in the Clayton Antitrust Act of 1914 and the Robinson-Patman Act of 1936. Additionally, the FTC oversees compliance with the Webb-Pomerene Act of 1918 which allows associations to engage in export trade without violating the Sherman Antitrust Act. In 1946, the FTC was granted authority to cancel flawed trademarks. Furthermore, it enforces another law called the Truth in Lending Act. This act was enacted in 1968 for creditors not regulated by other government agencies to ensure that borrowers have access to accurate information about consumer credit costs.

The commission possesses the power to issue cease-and-desist orders for enforcing antitrust legislation in cases of violations. Typically, these orders require court approval for their effectiveness, necessitating the commission to present its arguments before a judge. When deciding such cases, the courts analyze and employ the term "unfair methods of competition." Unfortunately, certain court rulings have hindered the commission's endeavors to curb monopolistic expansion and somewhat compromised the objectives of antitrust laws. Nevertheless, the commission has made considerable progress in eradicating detrimental competitive practices from enterprises.

Japan

To fully grasp the significance of present day keiretsu, one must have a comprehension of Japanese history, as Japan has a deep appreciation for tradition.

In 1953, a US naval fleet arrived in Yokohama Bay and utilized gunboat diplomacy to coerce the Japanese Shogun into signing a trade agreement. This event led to the restoration of the Meji era fifteen years later, marking the end of Japan's 250 years of self-imposed isolation. Following their re-engagement with the outside world, Japan realized the need to industrialize and arm themselves. To gather knowledge on industrialization, the

predominantly agrarian and feudal society sent missions to Western industrialized nations. The reports from these missions revealed the concentration of immense wealth in the hands of a few families such as Krupp, Tyssen, Rothschild, Rockefeller, and Morgan. These families controlled vast industrial empires focused on industries like steel, oil, mining, and railways. In response, the newly established Japanese government rapidly developed various basic industries such as shipping, shipyards, coal mines, cement, and glass, hiring foreigners to oversee their operations.

In the 1880s, the government decided to sell them due to a lack of funds. However, since there was also a scarcity of private capital, only a few individuals showed interest in bidding. Most of these bidders were newly wealthy businessmen, leading to the rise of a new group known as zaibatsu. These affluent families formed their own banks and resembled those in the West. Mitsui, Mitsubishi, Sumitomo, and Yasuda were among the first and fastest-growing zaibatsu and together they were called the "Big Four."

The murder of the head of the Mitsui zaibatsu in 1932 had a significant impact on the family-held combines. They publicly expressed their 'conversions' (tenko) and proclaimed their true 'patriotic spirit', indicating support for Japanese military expansionism. However, the Imperial Army desired dedicated supporters to back their planned war in China, so they awarded contracts to new zaibatsu that had emerged after World War I.

When the Sino-Japanese War began in 1937 and Manchuria was seized, these new zaibatsu, particularly Nippon Sangyo (Nissan), were given autonomy in conquered territories. Despite primarily focusing on heavy industries and lacking financial resources compared to their predecessors, these new zaibatsu quickly depleted funds. Therefore, they turned to the

old zaibatsu supported by the Imperial Army to boost heavy industrial activities and aid the war effort.

Ultimately, this led to Japan and the US entering World War II after the attack on Pearl Harbor on December 7, 1941.

After Japan's devastating defeat and bombings in 1945, the country was left in ruins and reduced to Third World status. The USA occupied the nation to prevent Japan from posing a threat to world peace again. The Supreme Commander for the Allied Powers (SCAP) initiated a reform program to demilitarize and democratize Japan. As part of this program, major changes were made to disband Japan's military and industrial platform. Specifically, 15 major zaibatsu holding companies and 83 large zaibatsu companies were dissolved. The dissolution of these holding companies resulted in their shares being distributed among employees and the general public.

To ensure accountability, executives from 56 specified families associated with the top ten zaibatsu were required to give up their positions and forfeit their personal assets. Additionally, senior executives from 250 major companies faced losing their roles and being barred from holding executive positions - a total of 2200 individuals would be affected by this measure.

In addition to these reforms, it became illegal to use old zaibatsu names. This led even zaibatsu banks to change their names - for example, Mitsubishi Bank became Chiyoda Bank, Yasuda became Fuji Bank, Sumitomo became Osaka Bank, among others.

In order to prevent the reemergence of zaibatsu, SCAP enacted the Anti-Monopoly Act in 1947. This act prohibited companies from being holding companies and imposed a limit of 5% ownership for banks in any company. Additionally, it established the Fair Trade Commission, which aimed to

guarantee compliance with these changes.

In 1948, the spread of communism in Europe and Asia made Japan an important buffer for the Pentagon. The overthrow of China's nationalist government by Mao Tse-tung and the onset of the Korean War emphasized the need for a strong, democratic, non-communist government in Japan. This change in perspective was not limited to the Pentagon, resulting in a shift from dismantling Japan's economy to rebuilding it. In 1952, Japan and the US signed a Security Pact, which led to the withdrawal of the remaining occupation forces and restored Japan's independence.

Less than 25 of the original zaibatsu companies were broken up during the event. However, new, younger managers with the same loyalties and traditions filled the vacancies left by some of the zaibatsu managers. Despite American assumptions, the enduring connections between companies and individuals led to a strong incentive for them to remain united.

Soon after the occupation ended, the Ministry of International Trade and Industry (MITI) was established to prioritize Japan's goals. In 1953, SCAP's Trade Association Law was repealed, and in 1955, the restriction on banks' ownership of company shares was increased from 5% to 10%. One of the initial changes was the removal of the law that prohibited the use of the old zaibatsu names. The Big Four quickly restored their names, which symbolized their previous power and prestige. Concerned that their shares, originally held by the zaibatsu holding companies, might end up in the wrong hands, especially foreign ones, the old group banks bought back these shares from their new owners and entrusted them to other group members for safekeeping. This marked the beginning of the practice of cross-held

shares, which is still prevalent in Japanese industry today.

In 1953, the Ministry of International Trade and Industry (MITI) implemented a process called "keiretsification" to consolidate Japanese industry. MITI recognized that the central bank and a large-scale trading company were key components of the old zaibatsu groups. Thus, MITI made efforts to reconstruct these previously fragmented trading companies. The banks, except for Yasuda which became Fuji Bank, maintained their special relationships with members of the old groups after returning to their original names. These four original banks formed the core of the keiretsu established between 1951 and 1966. Two additional groupings emerged around Dai-Ichi Bank and Sanwa Bank later on. Together, these six groups now make up Japan's "Big Six" horizontal keiretsu. It is worth noting that in present-day Japan, zaibatsu is considered a derogatory term associated with past misconduct.

Keiretsu

Keiretsu, which are closely connected networks of companies, engage in the sharing of capital, research and development, customers, vendors, and distributors. These networks play a significant role in Japan's economy and have strong historical roots. The competition among keiretsu entities is intense, as each one strives for the largest market share. To prevent direct competition between member companies, the keiretsu abide by the "one set principle," allowing only one enterprise per business sector. Mitsubishi, Mitsui, Sumitomo, Fuji, Daiichi Kangyo, and Sanwa form the prominent keiretsu known as the big six, accounting for a quarter of total Japanese assets. The economy features two types of keiretsu: vertical and horizontal.

The horizontal keiretsu is made up of a central bank and a diverse range of companies from various industries and services, both related and unrelated. These member companies can

vary greatly in size from major manufacturers, large service providers like life insurance companies, and other significant corporations to more modest businesses.

To grasp the functioning of a horizontal keiretsu, consider a theoretical small sub-contractor named Company A. Company A manufactures automobile components and supplies them to other firms within its horizontal keiretsu, also known as the K-group. The companies within the K-group, who are customers of Company A, possess ownership in its stock and have appointed some of their past employees to serve on Company A's board of directors. It is worth noting that Company A's bank is also affiliated with the K-group.

Despite its inability to sell to non-K-group customers, Company A is reluctant to discuss its pricing due to the consequence of losing all business and financing from the keiretsu. Nonetheless, with K-group members on its board and management team, as well as a K-group bank and shareholders, it is highly improbable for Company A to even contemplate breaking away from the K-group.

The reward for exercising this level of control is the security it brings. Company A is practically assured of steady business. While its potential for profits may be restricted, it will still allow its owners to enjoy a comfortable lifestyle and will offer its employees stable employment.

A drawback of the horizontal keiretsu system is the limited competition for products, although there are some exceptions, particularly in the automotive and electronics sectors. In general, both quality and prices remain high. Consequently, Japanese consumers typically incur higher expenses compared to Western counterparts when purchasing most items.

The vertical keiretsu is centered around a major manufacturer, which is not associated with a horizontal keiretsu. Unlike

the diverse industries represented in a horizontal keiretsu, the members of a vertical keiretsu typically come from a single industry. This type of keiretsu primarily consists of supplier and distributor relationships that cater to the core manufacturer.

Both vertical and horizontal keiretsu have an impact on the economy, but they focus on different sectors. Vertical keiretsu are mainly found in the competitive fields of automobiles and electronics. Although other countries are adopting the vertical keiretsu model, the horizontal keiretsu system is beginning to decline due to factors such as Japan's prolonged recession and increased foreign competition.

The Responsibility of the Bank

The bank plays a crucial role in a keiretsu, serving as more than just a financial institution. It serves as the "central clearinghouse for information about group companies and the coordinator for group activities." Japanese banks have historically been seen as the primary source of funding due to the Tokyo Stock Exchange's reputation of being a gambling casino, although this perception has only recently changed. Therefore, all major Japanese companies have a special connection with at least one bank. This connection provides the company with access to funds, valuable market insights, and advisory services while also granting protection and assistance during times of crisis. In return, the bank gathers information and can guide or encourage the company in choosing its business partners, often favoring other keiretsu members. Moreover, as part of this relationship, the bank often holds a significant stake in the company to maintain share stability.

Traditionally, corporate accounting and disclosure in Japan have been lacking, so the bank serves as a credit monitor and assesses risk based on its knowledge of group members' performance.

The bank also oversees cross-shareholdings and loans among group members, offering advice and guidance. Additionally, due to its familiarity with members' businesses, the bank acts as a venture capitalist, supporting R&D and important technical developments. The authors mention how Sumitomo Bank supported Nippon Electric Company's investments in semiconductor technology, where NEC surpassed its competitors in investment but relied on external finance for 85% of its capital. The bank not only provided assistance but also encouraged other Sumitomo keiretsu companies to provide one third of NEC's loans.

Lastly, the group bank functions as a proficient company physician, being prepared with its knowledgeable team of executives to step in and assist troubled customers. This includes offering extensive management expertise and guiding the company in the right direction, which is a significant contributing factor to the rarity of large company failures in Japan.

Cross-shareholding

After World War II, the majority of shares in Japanese companies were privately owned, accounting for about 69%. However, by 1989, the scenario had changed significantly. Banks now held approximately 42.3% of Japanese shares, and corporate holdings had risen to 24.8%, totaling over 67% in non-private ownership.

The practice of cross-shareholding had begun after 1952 but gained momentum following the Japanese Stock Market crash in 1964. To prevent foreign investors from acquiring shares in leading Japanese companies when prices fell, the government froze these shares from being sold on the market. These frozen shares represented more than 5% of all shares issued by companies listed on the First Section of the stock exchange.

Between 1967 and 1971, these shares were gradually released back onto the market. To prevent them from falling into unauthorized hands, keiretsu banks and other affiliated

companies purchased them. Concerns about foreign takeovers drove a movement towards establishing stable shareholding.

This movement initially started with car manufacturers and then quickly spread among both horizontal and vertical keiretsu. Manufacturers sought to protect their suppliers from takeovers, resulting in closer bonds within the keiretsu system. For example, Toyota stabilized 70% of its total shares by selling them first to Mitsui keiretsu's banks and insurance companies, then to other group members, and finally to entities within its own vertical keiretsu. This undertaking made it clear that Toyota was affiliated with the Mitsui keiretsu.Few companies have stabilized such a significant percentage of their shares, typically falling within the range of 15-30%. Since the mid 1970s, these cross-shareholdings have become institutionalized and have continued to follow the same pattern. However, due to capital gains tax implications, there is a considerable deterrent to disposing of assets that have experienced substantial gains of up to 300-400%.

Besides reaching their goal, which saw foreign shareholding of Japanese shares reach its peak at 6.3% in 1983, there were other benefits that resulted from this system. Firstly, it strengthened relationships and served as a crucial component that binds the keiretsu together. Secondly, by reducing the number of shares available in the market, it had the tendency to drive up share prices, ultimately enhancing everyone's ability to borrow money using these secure and appreciating assets as collateral. Lastly, and most importantly, Miya*censored*a and Russell approximate that approximately 25% of shares in Japanese companies are presently held as keiretsu cross-holdings. Furthermore, an additional 50% is under the control of banks, trust companies, and insurance companies, most of which maintain keiretsu connections. This arrangement has provided

leading Japanese companies with the freedom to make decisions with a longer-term perspective compared to their Western counterparts. With the ability to prioritize employees over shareholders, they can focus on expanding their market share rather than solely pursuing short-term profits.

Conclusions

Traditionally, the Justice Department, the Federal Trade Commission (FTC), and U.S. courts have been independent in shaping antitrust policy, unaffected by statutory requirements or political influences. The main objectives of antitrust law have been to enhance consumer welfare and promote economic efficiency. In comparison to Japan, the United States has prioritized competition as its industrial policy.

U.S. enforcement prioritizes preserving market competition. This includes taking strong action against large firms that engage in abusive practices that hinder competition, as well as targeting cartels. However, U.S. law does not typically regulate large firms that aim to protect or increase their market share through fair methods such as innovation and business expertise. It also does not typically regulate agreements between large firms and their suppliers or distributors, as long as these agreements do not prevent other firms from entering the market. The U.S. merger policy is proactive and aims to sustain competition.

Federal enforcement agencies, along with regional offices around the country, actively search for antitrust violations. Additionally, private firms, individuals, and several states also play a vital role in enforcing antitrust laws by initiating lawsuits in federal courts. Egregious violations such as price fixing are subject to criminal penalties.

Ever since the Meiji Restoration in 1868, Japan has employed industrial policies to catch up with and, in more recent times, compete against the United States. A prime example of this can be seen as early as the 1880s, when zaibatsu

were utilized by the Japanese to counteract the perceived negative effects of intense competition. The Japanese government has leveraged zaibatsu through industry associations to tackle issues such as unemployment resulting from economic downturns and challenges faced by mature industries. They have also mobilized private resources to accomplish public goals and fulfill certain development objectives.

Following World War II, the U.S. occupation government introduced a similar antitrust law to Japan's legal system. However, after the American withdrawal, the Japanese law was made less stringent and its enforcement became subordinate to industrial policymakers' demands. This resulted in the establishment of over one thousand government-sanctioned cartels by the mid-1960s.

Despite a resurgence in Japanese antitrust enforcement since the late 1970s, collaboration and its value remain deeply ingrained in Japanese behavior. This is evident in the ongoing presence of cartels and the purchasing practices of the keiretsu, which create tensions with trading partners.

Industries with chronic excess capacity, such as steel, typically need public or private restraints on imports to keep prices higher than international levels. This creates opportunities for Japanese dumping in foreign markets. As a result, the combination of private import restraints and dumping leads to unemployment being shifted onto foreign producers.

Japanese firms have faced legal issues due to price fixing in industries where they hold a dominant position, such as video cassette recorders and fax paper. While keiretsu networks in Japan allow competition between different brands, their purchasing practices and control over distribution channels can create obstacles for foreign products and companies, as well as new domestic competitors, in retail markets.

According to the SII Report (1991), Japan made improvements to its laws and enforcement to align

with U.S. antitrust laws. However, the Japanese Fair Trade Commission (JFTC) is generally less aggressive in its enforcement compared to U.S. antitrust agencies. Private suits have limited remedies available, and Japanese courts are hesitant to make findings that contradict government policies or actions of important ministries.

The ongoing dilemma between cooperation and rivalry in Japanese policy complicates the negotiation of an effective CPA beyond the establishment of formal requirements for domestic legislation and enforcement. In Japan, enhanced statutory assurances are not what U.S. exporters and investors require. Instead, they necessitate improved avenues for redress, including more robust enforcement by the JFTC, access to private legal actions in cases where the JFTC's intervention is inadequate, and an alternate forum should the Japanese courts decline to enforce the law. In the absence of these options, U.S. firms can seek advocacy from their governments through the WTO; however, its jurisdiction has proven to be considerably restricted in practice.

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