Stock Crashes May Follow Antitrust Actions
Jonathan Marshall San Francisco Chronicle, THE JOURNAL RECORD
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 the 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 spooking markets. In addition to the Microsoft charges, the Justice Department is reportedly ready to challenge Visa USA and MasterCard International's 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 microprocessor market. 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 with 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 corporate profits. "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. …