Management,Market Power,and Antitrust—Procter & Gamble and the U.S. Laundry Detergent Industry

Abstract

There are three interrelated sources of market power in consumer goods industries—horizontal competition, vertical competition, and sustained management superiority. The important role of vertical competition is poorly represented in the Horizontal Merger Guidelines and that of management is ignored. Longer term, a firm's success as a horizontal and vertical competitor is largely determined by the competence of its management relative to that of its present and potential competitors. The competition agencies must begin to measure the relative management competence of the firms in an industry under investigation for, as the laundry detergent industry demonstrates, the maintenance of supracompetitive returns, the ease of entry, and other outcomes are largely a function of the firms' relative management competence. The article traces how the fortunes of Procter & Gamble and its laundry detergents have ebbed and flowed with the performance of its management from the FTC's investigation of the laundry detergent industry (1973–80) to the present. It also asks what antitrust should do about a firm that had honestly earned its high margins and dominance but whose brands performed no better than far cheaper private label counterparts.