User-Friendly Truce

In an era of mind-boggling mergers and breathtaking market shares, with giant corporations roaming the landscape like fearsome predators, the question is asked with increasing frustration.

“Why are you just standing there?” is the typical lament, according to Federal Trade Commission Chairman Robert Pitofsky. “Why don’t you do something?”

Now the Clinton administration is signaling that it wants to do more.

Justice Department officials, convinced that Microsoft has improperly exploited its vast market power, have pressured the software giant to the bargaining table in a last-ditch bid to avoid a federal lawsuit. And the government’s antitrust cops are struggling with bigger caseloads than ever.

President Clinton, meanwhile, has created a task force to explore whether the explosive burst of mega-mergers poses new risks for consumers.

Yet for all that, the vast majority of mergers continue to breeze through the regulatory apparatus, deals are reaching dollar magnitudes considered unthinkable not long ago, and no one expects a dramatic halt to the activity.

Colossal unions, such as the proposed marriage of Chrysler and Daimler-Benz, valued at $40 billion when announced this week, or the $70-billion team-up of Citicorp and Travelers Group, are expected to pass regulatory muster, as industries from finance to airlines to telecommunications are increasingly dominated by giants.

Clinton “has pretty much adopted a policy that you go along with these big economic actors,” said Ruy Teixeira, political analyst with the Economic Policy Institute in Washington. “You try to keep the stock market happy. You try to keep the bond market happy. . . . It’s been a traditional Democratic theme to rail against large concentrations of economic power. But that theme isn’t too popular these days.”

Gauging the Clinton administration’s approach to antitrust enforcement is no simple matter. Justice Department statistics point to a steady increase in investigations since the late 1980s. The department’s antitrust division, for example, last year initiated 277 investigations of mergers, compared with an annual average of 88 during the George Bush presidency. But at the FTC, the percentage of enforcement actions taken against proposed deals appears no higher than in the Bush administration.

The numbers themselves have skyrocketed, even if the percentages have only edged upward: Regulators examined 1,589 mergers during Bush’s last year in office; this year the number could exceed 5,000.

“Even an activist administration is only going to look carefully at about 4% of the deals that they see,” said Pitofsky, who contends that the FTC has “widened the area” of mergers it would examine compared to past years. As an illustration, he cited the FTC’s decision to block the proposed merger of Staples and Office Depot in 1997, contending the deal would have raised prices even though the retailers represent only a fraction of the places shoppers could go for office supplies.

The new White House task force will be “monitoring the existing situation--looking to see whether the overall trends are pro-competition and pro-consumer, looking at whether our laws are up-to-date with current economic conditions and just ensuring that we’re on top of any significant trend in the economy,” said Gene Sperling, head of Clinton’s National Economic Council.

“I don’t think any of us start with the presumption that something bad is happening,” Sperling said. “It’s just that something big is happening, and you want to be on top of it.”

To consumer activists, however, White House plans to explore the issue are of limited comfort.

“Studies are what academics do,” said Edmund Mierzwinski, consumer program director of the U.S. Public Interest Research Group, which has concluded that bigger banks on average charge higher rates for checking accounts than do their smaller counterparts. “I’d like to see this administration protect consumers.”

What critics find galling is the increasing acceptance among policymakers of the notion that maybe big is not so bad after all, at least in a global economy where capital, technology and even labor can shift across borders with dizzying speed. Nowadays, regulators are much more interested in whether a big firm, or a proposed combination, operates in a manner that would lead to higher prices and less consumer choice.

“There is a strong presumption that anything that results from a market is good,” said Ronald E. Blackwell, director of corporate affairs at the AFL-CIO. “And historically, that hasn’t been a good presumption.”

Size alone, goes the thinking that gained prominence in the 1980s, can be of paltry significance in the modern economy, where few firms have the influence to dictate prices without risking dangerous competition.

That is why the FTC last year approved Boeing’s $14-billion purchase of McDonnell Douglas. Similarly, it is why Chrysler and Mercedes autos may soon have the same owner, and why Travelers and Citicorp may soon become a financial conglomerate reaching from banking into insurance.

Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh, recalls the huge Japanese banks that dominated global rankings of size in the 1980s and were cited--wrongly--as evidence of America’s industrial decline. “They were just big gorillas waiting to be slaughtered by their own mistakes, and that’s what happened to them,” he said.

To others, however, such economic assessments overlook important concerns that have little to do with retail prices or consumer choices. Rather, they address the political realities of letting loose such muscular entities.

“These giants will be employing hundreds of thousands of people directly and indirectly, through their suppliers. This gives them enormous power if they go to Washington,” said Robert B. Reich, former secretary of labor and a professor of economic and social policy at Brandeis University. “It wouldn’t be unreasonable to have our trust-busters think about adding some conditions on the political activities of these new giants.”

Yet even if the flurry of deal-making has raised questions in the public, no one detects a groundswell of protest. The unemployment rate is exceptionally low, and a growing number of Americans own shares of stock that often soar in value when mergers are announced.

“When things turn negative, I think you’d have a different reaction,” said Laura Tyson, a former economic advisor to Clinton and now a professor at UC Berkeley.

*

Times staff writer Elizabeth Shogren contributed to this report.

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A systems analysis

The Justice Department and 20 state attorneys general have accused Microsoft of using its status to crimp competition--especially in the Internet browser market. To head off antitrust action, Microsoft agreed to delay shipping its new Windows 98 software, which integrates the Windows 95 operating system with a Web browser. Microsoft’s Windows operating system is used on more than 90% of the world’s personal computers. In recent years, the Redmond, Wash.-based company has stepped into other areas, including the Internet, cable and television.

Microsoft has quickly gained a bigger share of the browser market . . .

1995

Netscape: 80.1%

Microsoft: 2.9%

Others: 17.0%

*

1997*

Netscape: 57.6%

Microsoft: 39.4%

Others: 3.0%

*Third quarter

. . . While maintaining a huge lead in operating systems . . .

Market share in operating systems, 1996 and projected 1998:

Windows 95, 98

Projected 1998: 73.9%

1996: 53.0

*

Windows NT

Projected 1998: 14.4%

1996: 3.1

*

Mac OS

Projected 1998: 5.3%

1996: 5.5

*

OS/2

Projected 1998: 2.0%

1996: 2.8

*

UNIX

Projected 1998: 1.5%

1996: 1.7

*

Windows 3.1 (with DOS)

Projected 1998: 1.1%

1996: 28.3

*

DOS (without Windows)

Projected 1998: 0.87%

1996: 3.4

*

NetWare (server licenses)

Projected 1998: 0.74%

1996: 0.78

*

Proprietary and others

Projected 1998: 0.41%

1996: 0.80

. . . And is setting its sights on dominating other markets.

Other markets Microsoft is trying to set the standard in:

Travel: through its online travel agency Expedia.

Cable: through MSNBC, a cable channel and online service bankrolled by NBC and Microsoft.

Multimedia online: through acquisitions of 10% of RealNetworks, manufacturer of RealAudio and RealVideo real-time streaming technology, and its competitor, software maker VXtreme, and Web TV.

The convergence of TV and the PC: through a $1-billion investment in cable TV operator Comcast and a deal with TCI and Sun Microsystems to provide software for cable TV set-top boxes.

Note: Numbers may not add up to 100% because of rounding.

Sources: Dataquest, Times reports

Researched by JENNIFER OLDHAM / Los Angeles Times