To find the culprit behind falling U.S. stock prices, don't look
west to Hong Kong but east to Washington, some economists say.
It may be no coincidence that the two biggest business stories
last week were the sharp tumble in equity markets -- especially
technology issues -- and the Justice Department's suit against
Microsoft for allegedly violating a consent decree it signed with
government in 1995.
According to George Bittlingmayer, a business school professor at
the University of California at Davis, many of America's biggest
stock market plunges have been preceded by just such government
declarations of war against mergers and monopolies, known in the old
days as trusts.
If he's right, the Clinton administration's renewed interest in
antitrust enforcement, after years of relative inactivity, may be
In addition to the Microsoft charges, the Justice Department is
reportedly ready to challenge Visa USA and MasterCard
control of the electronic funds transfer business.
The Federal Trade Commission, too, has showed new life recently,
blocking the merger of Staples and Office Depot, and launching an
investigation of Intel for monopolistic control of the
Adding to the stampede, at least five states, including
California, are planning investigations of Microsoft's threat to
dominate the Web browser market by integrating Internet Explorer
the Windows operating system.
Also getting into the act is the Senate Judiciary Committee. As
Sen. Orin Hatch, R-Utah, said last week, "Vigilant enforcement of
antitrust law will be imperative to prevent a situation which would
prompt calls for government regulation of the Internet."
Investors may see the government's highly publicized
investigations of Intel and Microsoft as the start of a broader
political attack on the sources of innovation that drive America's
economy. The consequences of antitrust enforcement against even a
few high-profile companies can reverberate throughout financial
markets by forcing investors to revise their rosy outlook for
"The latest market movements are consistent with what has happened
in earlier years," Bittlingmayer said. "It's a big deal when a
Republican Congress is talking about holding hearings on competition
in the computer industry."
Bittlingmayer has published several articles in scholarly journals
offering statistical evidence that aggressive antitrust campaigns
have coincided with drops in the stock market. In the Journal of
Finance, Bittlingmayer reported that each antitrust case filed from
the period 1904-44 was associated with an average drop of the Dow of
between 0.5 to 1.9 percent, controlling for other factors.
Bittlingmayer claims anecdotal evidence supports him as well:
* The panics of 1903 and 1907 came when Teddy Roosevelt was busy
making his reputation as America's first great "trust buster."
* The 1920s boom came during a period of intense mergers and lax
antitrust enforcement. But in late October 1929, coinciding with the
great crash, U. …