Busting the Idea of Antitrust Enforcement

Washington’s trustbusters have been generating some pretty bizarre headlines lately. And the only lesson I can draw from them is that federal regulators are more concerned about maintaining two sources of paper clips than of jet fighters or commercial aircraft.

The G-men who valiantly stood up to the powerful office supply industry and blocked the proposed merger of Staples and Office Depot were the same antitrust matadors who over the last two years have waved on through the mergers of Boeing and McDonnell Douglas, of Raytheon and Texas Instruments, of AT&T; and McCaw Cellular, of Time Warner and Turner Broadcasting, of Walt Disney and Capital Cities/ABC. They have watched Morgan Stanley join with Dean Witter, Chemical Bank with Chase Manhattan, Sandoz with Ciba-Geigy, Union Pacific and Southern Pacific railroads. Lockheed Martin/Northrop Grumman--the list is seemingly endless--serving almost exclusively as passive bystanders through one of the most intensive periods of corporate mergers and consolidations in American history.

After all that, it must have taken real courage to make a stand at Staples.

What gives? Is there a consistent antitrust policy hiding somewhere in the bowels of the Federal Trade Commission or the Justice Department?

*

The best answer available from the policy wonks is that, yes, there is a method behind the government’s thinking.

It goes something like this: In a global economy, it no longer makes sense for the government to oppose corporate mergers simply on the basis of size, as did the antitrust reformers of the past. Instead, the focus should be on market efficiency, on what’s best for the consumer in the form of lower prices and better products and services. And always, the regulators will consider not just the domestic market, but also the international competitive climate as well.

Thus, companies in industries that face stiff foreign competition will be treated sympathetically when they want to merge with domestic rivals, but firms in purely domestic economic sectors--like retailing--will undergo tougher scrutiny. So Boeing and McDonnell Douglas, the last two American commercial aircraft manufacturers, were allowed to join forces to battle Europe’s Airbus; but Staples and Office Depot face no foreign threat, and their merger would lead directly to higher consumer prices for office products. Similarly, the FTC opposed a proposed merger between the Rite Aid and Revco drugstore chains, arguing that the deal would have led to higher prescription drug prices.

So-called category-killer superstores like Office Depot and Staples will face an extra hurdle, since they are by definition designed to enter markets and (by undercutting prices for whatever category of retail goods) take customers from smaller local competition.

*

The FTC refused to accept the argument that the presence of local office supply stores and other large retail chains such as Wal-Mart would prevent a combined Office Depot and Staples from sharply raising prices; the government claimed that the new superstores had created a new market that was unique. Other category killers--such as Home Depot--will now have to be on guard as well.

Curbing the power of category killers is fine, but is retailing the proper place for America’s antitrust cops to draw the line? The tough standards on retailing seem at odds with Washington’s tolerance for mega-mergers in industries facing foreign competition, and that smacks more of industrial policy favoring big business than of a rational antitrust policy. Certainly, the Europeans now believe that we are allowing corporate America to bulk up at home in order to fend off competitors overseas. The Europeans are reacting particularly badly to the giant mergers in the U.S. defense industry, such as Boeing’s consolidation with McDonnell Douglas. Fearful that Airbus might not be able to keep up with the new American giant, the Europeans seem determined to throw roadblocks in the way of the deal.

But what’s worse, the regulators have failed to apply their new theories consistently. In telecommunications, for instance, Washington has approved some giant mergers--Bell Atlantic and Nynex, for example--in part because officials are still uncertain which technologies and which firms will prosper and grow. Yet it’s possible that by allowing a few giants to dominate the field, technological innovations will be smothered. Critics add that the Clinton administration’s refusal to restrict mergers in telecommunications will drive up both telephone and cable TV rates.

“We know that some mergers are good for competition and some are bad,” Reed Hundt, the outgoing chairman of the Federal Communications Commission, told the Washington Post recently, describing the regulatory confusion. “But I don’t think government has yet drawn a clear line between them.”

*

In the process, the regulators have not only defanged the antitrust laws, they have also made it much harder to figure out exactly how the laws will be applied from one case to the next. Washington’s decision to judge mergers on the basis of market efficiency rather than on the size of the resulting company could also lead government to pay less attention to the social costs.

Warns Eleanor Fox, a law and trade professor at New York University School of Law: “The shift in antitrust from protecting the weak against the powerful to helping even the powerful become efficient brings with it a responsibility to safeguard the values that footloose capitalism might destroy.”

*

James Risen is a national correspondent in The Times’ Washington bureau. He can be reached by e-mail at james.risen@latimes.com