It’s just an odd coincidence, but there did seem to be something telling about the “What’s News” section on the front page of today’s Wall Street Journal, which listed as its first item the findings of fact in the Microsoft antitrust trial and as its second Pfizer’s $74 billion hostile bid for Warner-Lambert. (Pfizer is attempting to muscle out American Home Products, which wants to have a friendly merger with Warner-Lambert.)
The first item describes the results of the U.S. government’s relentless pursuit of a company it argues–and Judge Jackson agrees–is a monopolist engaged in anti-competitive behavior. The second item, by contrast, describes the results of the U.S. government’s general indifference to the anti-competitive implications of the huge wave of mergers that continues to sweep across every sector of the U.S. economy. And the logical question these items raises is: What’s the difference?
To be sure, it’s not entirely fair to say that the Justice Department and the Federal Trade Commission have been asleep at the wheel when it comes to pursuing antitrust cases. They have blocked the Staples-Office Depot merger and the Lockheed-Northrop Grumman deal, and threw a monkey wrench (ill-advisedly, but still) into Barnes & Noble’s proposed acquisition of book distributor Ingram. And in other cases, they’ve forced companies to sell off divisions or make other changes before mergers would be approved.
On the whole, though, the consolidation of industries ranging from financial services to telecommunications to aerospace to the drug industry has proceeded remarkably fast and with remarkably little interference. And what’s perplexing about this, particularly in light of the Microsoft case, is that mergers often have an immediate anti-competitive impact, in the simplest sense that they reduce the number of players in a market. If the Justice Department’s default position is that competition protects consumers–a sensible enough position–then it’s hard to see why the merger boom should not be scrutinized more carefully than it has been.
Of course, antitrust law is a very blunt instrument, and should be used only when real harm can be discerned. But antitrust law is also much better suited to preventing the formation of giant megacorporations–it is called anti-trust law, after all–than to eradicating monopolies that have arisen by other means.
Remember that monopolies per se are not illegal. In fact, the establishment of temporary monopolies–of taste, of technology, or of distribution–is the only way that companies are able to reap meaningful economic profits, which otherwise would be immediately competed away. A monopoly becomes illegal only when the company exercising it uses that monopoly to shut out competitors in other markets, either through coercion or by subsidizing low, competition-killing prices in that market. (Again, many academic economists question whether this last tactic is really feasible, but antitrust law depends on the assumption that it is.) And this, of course, is exactly what Judge Jackson’s findings of fact say Microsoft did.
Oddly, though, when the Justice Department’s Joel Klein appeared on ABC’s This Week over the weekend, he seemed to be saying something more than that Microsoft had acted in ways that were unacceptable for a monopolist. He seemed to suggest that being a monopolist was itself unacceptable. “You know, in America you have a choice,” he said. “And if IBM or Gateway or Compaq or Dell … had a choice, they could go to Microsoft and negotiate (or) they could go to somebody else and negotiate. Here, everybody’s got to go to one place–that’s what’s hurting us.”
That’s an audacious reading–or rather rewriting–of antitrust law, and suggests that what Klein wants is not just the breaking up of Microsoft into separate companies but the breaking up of Microsoft’s operating-system division into competing companies (since otherwise there still wouldn’t be choice of different versions of Windows for IBM or Gateway or Dell). Maybe next we can block any further acquisitions by Pfizer and tell it that it has to set up competing companies to distribute different versions of Viagra, too.