ARTICLE FOR LEGAL TIMES OF WASHINGTON
Albert A. Foer and Robert H. Lande
After a generation of decline, antitrust appears to be on the mend. While Joel Klein is not yet as famous as Monica Lewinsky, the Microsoft case has become a topic of table conversation and Aunt Betty wants to know if the merger wave means she will ultimately have to do all her shopping at one store. What drives the current salience of antitrust? Will the public's recent fascination with monopoly and mergers be converted into a sustainable base of political support for a more competitive economy in the 21st century?
- The first driving force is the tidal wave of mergers. The number of federal pre-merger filings has risen from 1,529 in 1991 to an estimated 4,500 this year, and, according to FTC Chairman Robert Pitofsky, "the market value of merger transactions this year could exceed $2 trillion, compared to $600 billion for the peak year (1989) during the merger wave of the 1980's." As a result, some markets are becoming significantly more concentrated. Collusion and other forms of competition-reducing behavior might well increase.
- Second, as new technologies emerge, monopolies are created in markets that didn't exist a decade earlier. Battles are being fought in industry after industry as the new high-tech monopolists strategize to prolong their reigns. The most notable example is the Microsoft case, with its potential for determining who will control the Internet for the foreseeable future. Predictions that today's high-tech information age has no need for antitrust have proven to be embarrassingly off the mark.
- Third, deregulation has brought sudden and dramatic change to many industries and the players have had to adjust to a culture based on free market competition rather than cozy cooperation and regulated behavior. The trade-off that supported deregulation was that direct economic regulation by government would be replaced by market forces reinforced and invigorated by antitrust. It now seems clear that antitrust did not always play its intended role and critics are beginning to formulate an either/or mandate-- either make these industries work competitively in the consumer's interest by the vigorous application of antitrust, or let's go back to direct government regulation.
- Fourth, there is a growing consensus that the laissez faire "reforms" of the Chicago School, which have dominated the antitrust field since 1980, went too far. To cite but one example, many believe that the virtual absence of merger enforcement in the airline industry, caused in part by the application of the now-discredited "contestability" theory, led to many monopolistic markets. There has been a backlash by post-Chicago scholars who are planting the seeds of what may become an antitrust renaissance. These scholars are writing with the hope that their ideas will one day have as much influence as the ideas of Bork, Posner, and other Chicago School scholars did in the 1980's.
Although the merger trend may be slowed somewhat during the current stock market correction, these driving forces will remain in place. But who will actually push an activist agenda for antitrust?
The antitrust constituency used to be led by small business, but rarely is that the case now. Today's "entrepreneur," taught in business school to focus even from start-up on an exit strategy, seemingly can't wait to be bought out by someone larger. This mentality is not likely to make antitrust a high priority.
By contrast, in many instances large second-tier companies seek antitrust help in their fight against a dominant player. Pepsi brings a civil antitrust suit against Coke. Netscape feeds information to Joel Klein. Such companies-along with companies that want to participate on a level playing field in deregulated markets-have the potential of becoming advocates of the institutions of antitrust.
Interestingly, organized labor, which historically has not been particularly supportive of antitrust, has become increasingly concerned about mergers. After all, it is often union employees who are downsized out of the merged company and there are fewer companies left to bid for an employee's specialized skills.
The antitrust plaintiffs' bar has the potential to supplement federal and state antitrust resources by taking on the role of private attorneys general. Their interests and those of consumers usually coincide. But this sector of the bar is much less organized than the defendants' bar and tends to be comprised of mavericks and individualists who are less likely, by nature, to join forces. All too often their reaction to the decline of antitrust has been to flee to other fields of law, such as securities litigation.
Many in the defense bar are allied with conservative foundations and the leaders of big business who have a stake in cutting antitrust. back. Their institutions have dominated Washington for a quarter of the century. Three of the largest -The American Enterprise Institute, Heritage Foundation, and Cato Institute-each reportedly spends close to $30 million per year, much of it on competition-related issues. They have helped cause the substantial reductions in federal antitrust resources since the 1970's.
Consumer groups are today the primary political supporters of antitrust. They recognize that free markets work best for consumers when there is active antitrust enforcement to ensure the market is free to offer consumers the choices they desire. Even those consumer advocates who would in their hearts prefer regulation understand that this will not happen, and so they adopt antitrust as a second-best solution.
Despite fact that one side is well organized and well funded and the other side is neither, recent years have seen real signs of antitrust life at the Justice Department, the FTC, and in many States. But, the advocates of constricted antitrust make their political donations and otherwise promote their views. How long will it be before the Joel Kleins and Bob Pitofskys are replaced by faceless, comparatively passive enforcers-or even worse, by Chicago School ideologues? How can supporters of vigorous antitrust take advantage of the current antitrust moment? Three things are required.
- First, the forces which have a current or latent interest in robust antitrust must effectively coalesce.
- Second, the public must be educated as to antitrust's value. For example, how many are aware that when the FTC blocked the proposed merger between Staples and Office Depot, the annual savings for consumers was approximately equal to the annual federal budget for antitrust?
- And third, politicians at the federal and state levels must be convinced that vigorous antitrust is a bipartisan, mainstream capitalist issue, and therefore they should significantly increase the public resources devoted to protecting competition.
The American Antitrust Institute (AAI) was created earlier this year to help coalesce, focus, and energize these forces. A small, independent non-profit organization whose mission is to develop a centrist/left coalition of supporters of antitrust, the AAI draws on the brainpower of a growing board of advisors. This already includes Alfred Kahn, the father of deregulation; Howard Metzenbaum, the former chair of the Senate Antitrust Subcommittee and current chair of the Consumers Federation of America; several entrepreneurs; and a variety of antitrust law professors, private practitioners, and economists. All are committed to a post-Chicago reconstruction of antitrust.
Early initiatives of the AAI have involved the airline and energy industries. When the Department of Transportation proposed rules for dealing with predation at hub terminals, AAI endorsed the effort, providing an explanation for why predation is an appropriate subject for antitrust-type scrutiny(in the face of the Chicago school's bewildering success in labelling price predation as a virtual impossibility). The AAI offered a creative "safe harbor" alternative which would permit dominant airlines to cut prices as low as they want, provided the low prices are guaranteed to stay in effect for a substantial period of time.
When the Federal Energy Regulation Commission asked for comments on its proposed merger guidelines, AAI responded by calling for a moratorium on utility mergers until the infrastructure could be built for assuring competition in a deregulated electricity market. In view of what has been learned about the deregulation process in other industries, the AAI said, FERC will have to reinvent itself for antitrust responsibilities.
The AAI has also gone to bat for increased resources for the federal antitrust agencies. It recently provided an analytical memorandum to the Congressional Conference Committee working on the DOJ and FTC budgets. As part of its education mission, the AAI on October 30 conducted its first antitrust briefing for business and legal journalists, with Advisory Board members William Kovacic (George Washington University Law School) and Stephen Calkins (Wayne State University Law School) joining the two of us in a panel presentation on antitrust stories to follow over the next six months.
Among the projects the AAI is currently working on are: (1) continued participation in air transportation and electricity restructuring issues (2) proposals to strengthen the federal merger guidelines; (3) model state indirect purchaser legislation; (4) an analytic framework that will help identify non-traditional yet anti-consumer collusive activity, (5) a research agenda for antitrust academics, and (6) development of a position paper on federal antitrust resources in fiscal year 2000.
Antitrust, a lynch pin of competitive capitalism, rests on a solid, bipartisan tradition. ther than being outmoded by the development of new technologies, antitrust has become ever more relevant. Today we are participating in a post-Chicago reconstruction that may finally give antitrust a broad institutional base it so desperately needs.