The Harvard school of thought states that the structure of an industry such as its relative sizes and number of firms determines the efficiency of the firms in the market. The theory was utilized by Harvard professors since the 1960s (Piraino, 2007). Moreover, the scholars argued that when various markets are concentrated, they are highly likely to show or take part in anti-competitive conduct. When the Congress passed the Sherman and Clayton Acts, the country was alarmed by the extensive political and economic power of trusts such as United States Steel Corporation and the Standard Oil Company. The laws were passed to shield individual competitors from the enormous power of the larger firms.
The Harvard scholars opposed the concentration of markets despite the fact that it would have led to lower costs for the consumer. For instance, Alcoa was penalized by the courts in 1945 because of expanding its manufacturing capacity to meet the booming demand for aluminum. Judge Hand penalized the company for using aggressive competition that ultimately benefitted the consumer (Piraino, 2007). The Harvard School approach was also used against two banks in Philadelphia in 1963. The Supreme Court precluded the merger and declared irrelevant the argument that the merger would lead to better services. The two banks held less than 30% of the market.
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The antitrust law may have had many advantages, but it was not perfect. Attempts to create larger firms were presumed illegal by the courts without analyzing the prevailing economic conditions in the market. The outcomes of trials were predictable, and all the executives avoided businesses that would consolidate their market. Furthermore, the approach found fault in aggressive competition and prevented larger corporates from investing in areas that would have benefited the end consumer. The approach preferred a market where every firm had limited market share.
Reference
Piraino, T.A. (2007). Reconciling the Harvard and Chicago Schools: A New Antitrust Approach for the 21st Century . Indiana Law Journal. Volume 82(2). 346-409.
