Breathing Life into Antitrust Policy
The United States is witnessing a merger wave unparalleled since the turn of the century. Big business will spend more than a trillion and a half dollars on the monopoly game in 1998, shattering all previous records.
While the Clinton antitrust authorities have wakened from the somulence of the Reagan-Bush years, with the important exception of the Microsoft case, they seem content to sit on the sidelines as the Big Boys combine.
The problem traces back more than two decades, when a conservative, corporate-backed campaign began to overturn many common-sense insights on the costs of mergers. The "law-and-economics" movement came to dominate law schools, scholarly writing and, eventually, the thinking of the federal judiciary. Its principles became the guiding doctrine for the Reagan-Bush Justice Department and Federal Trade Commission, the two U.S. agencies charged with enforcing the nation's antitrust laws.
The central tenets of law-and-economics, as applied to antitrust, include the notion that antitrust policy should concern itself purely with narrow economic effects of mergers and corporate behavior. based on a theoretical understanding of market efficiency, law-and-economics also holds that many outlawed or undesirable anticompetitive practices are irrational, and therefore should never occur, or are possible only in extreme and unlikely situations.
The Clinton administration has moved away from the more hardline versions of law-and-economics, but the movement's general approach remains entrenched at the Justice Department and Federal Trade Commission.
In examining proposed mergers, the Clinton antitrust authorities' modus operandi has been to scrutinize the effect on particular market niches, and call for divestitures of certain of the merging parties' overlapping business interests. They have revised antitrust guidelines so that they explicitly consider the purported "efficiencies" gained by mergers, and weigh these efficiencies against the likely harms from decreased competition - even though nothing in antitrust law suggests that "efficiencies" should be considered in antitrust enforcement. And they give great credence to the notion of "potential competition" - the idea that market participants are constrained from gouging consumers by the prospect of future competition, even when it does not presently exist.
The result has been that the Clinton authorities frequently request minor alterations in major mergers - a sell off of retail outlets in those locales where the merging competitors represent a large share of the entire market, or a divestiture of particular factories or product lines.
But very, very rarely does the administration act to block the megamergers, with the Lockheed Marietta-Northrup Grumman, CVS Rite Aid, Northwest-Continental and Staples-Office Depot mergers among the few exceptions. …