Does Exposure to International Trade Justify Relaxed Antitrust Treatment of Mergers

Adams, William James | January 1, 1989

When industries are exposed to foreign competition, relaxation of antitrust law in general, and of antimerger law in particular, may be justified in two ways. First, it may be argued that the ability to compete with foreigners requires possession of market power. One variant of this argument stresses the desirability of market power itself. Domestic enterprises must neutralize restrictive practices abroad — whether they are inspired by foreign governments or merely tolerated by them — if such enterprises are to enjoy their “natural” comparative advantages. A second variant of the argument emphasizes the growth of minimum efficient scale in manufacturing, due in no small measure to the rising importance of invention and innovation. In this variant, the market power acquired by domestic firms, through merger or restrictive practices, is thought to be an unfortunate, but necessary, by-product of achieving productive and dynamic efficiency. I shall focus on a second argument: that the existence of foreign competition eliminates both actual and potential reduction of competition that might otherwise result from market conduct, or from market positions, challenged by antitrust authorities. In this view, competition remains a desirable policy objective; yet it is achieved not through antitrust intervention but through the market mechanism of international trade.