[Congressional Record Volume 144, Number 45 (Wednesday, April 22, 1998)]
[Extensions of Remarks]
[Pages E619-E620]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               ANTITRUST

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                       Wednesday, April 22, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, April 8, 1998 into the Congressional Record.

                          An Antitrust Revival

       The Justice Department's recent decision to sue defense 
     giant Lockheed Martin to block its proposed $12 billion 
     purchase of Northrop Grumman reflects a trend toward tougher 
     enforcement of our antitrust laws. The federal government is 
     giving closer scrutiny to mergers and consolidations in a 
     wide range of industries, including everything from defense 
     and health care to telephones and airlines. It is also taking 
     a harder look at the growing dominance of firms in the high-
     tech field, most notably Microsoft.
       This revival of antitrust reflects a sea change from the 
     1980s, when deregulation and free markets were emphasized. 
     Back then, antitrust was viewed as government meddling in the 
     operation of free markets, and was rarely enforced. Antitrust 
     regulators continue to approve most of the mergers then 
     investigate, but the fact that they are investigating many 
     more proposed mergers and, in certain cases, suing to block 
     them is a notable development.
       Purpose and enforcement: Antitrust law has its origins in 
     the Progressive Era of the late 19th Century. The landmark 
     laws of the time, the Sherman Act of 1890 and the Clayton Act 
     of 1914, aimed at curbing the power of trusts, the large 
     combinations of industrial interests. The Sherman Act bars 
     combinations which unreasonably restrain trade. The clearest 
     example of a violation would be competitors in a given 
     industry agreeing to fix prices. The Act also prohibits a 
     dominant firm in a given market from acting to monopolize 
     commerce in that market. The Clayton Act forbids mergers 
     which have the effect of substantially lessening competition 
     or creating a monopoly. What precisely these vaguely-worded 
     statutes require has been left to the courts and regulators 
     to decide over the years.
       Antitrust law has two primary objectives. First, it seeks 
     to promote vigorous competition in the U.S. economy. 
     Competition is desirable because it tends to keep costs and 
     prices lower, encourage the efficient allocation of economic 
     resources, and provide for innovation and consumer choice. 
     The presumption of antitrust law is that the normal operation 
     of the free markets will foster competition. Government will 
     only step in where there is evidence of anti-competitive 
     conduct. Second, antitrust law aims to limit the 
     concentration of corporate power. The concern in the 
     Progressive Era was that the large corporate trusts 
     threatened to trample individual liberties, and that 
     suspicion of big business persists.
       Antitrust enforcement has waxed and waned over the years. 
     While regulators brought some high-profile cases, including 
     the one that broke up Standard Oil in 1911, enforcement in 
     the early years was lax. The Great Depression ushered in a 
     period of tougher enforcement as the American public demanded 
     stricter regulation of corporations the pendulum swung back 
     the other way in the 1980s, reflecting the Reagan 
     Administration's preference for free markets. Antitrust 
     enforcement is shifting again. The prevailing view today is 
     that free markets work, but don't work perfectly and 
     government intervention may be necessary to prevent 
     overreaching by powerful market players.

[[Page E620]]

       The problem of mergers: The spate of mergers in the last 
     five years has raised concerns, particularly about 
     competition in industries where there are fewer and fewer 
     competitors. The proposed Lockheed-Northrop deal, for 
     example, would have limited competition in government 
     contracts for key weapons systems, including airborne radar, 
     missile warning systems, and military aircraft production. 
     Likewise, the government successfully blocked the proposed 
     merger of Staples and Office Depot because the merger would 
     have effectively eliminated competition for certain office 
     supplies in certain geographic markets.
       Antitrust enforcement will often involve a fact-intensive 
     weighing of the competitive costs and benefits of a proposed 
     merger. Companies involved in the merger may argue, for 
     example, that the merger improves economic efficiency by 
     cutting overcapacity in the industry as well as overhead 
     costs, or that the merger is needed to keep pace with 
     overseas competition. Regulators will, in turn, try to assess 
     how the proposed merger affects choice and price for the 
     consumer, whether the consumer is the U.S. government, a 
     small businessperson, or a private citizen. Regulators rarely 
     block mergers outright, but rather seek to work with the 
     parties to limit anti-competitive effects.
       The problem of monopoly: Monopolization is a related 
     concern for antitrust regulators, as demonstrated most 
     recently by the Justice Department's battle with Microsoft, 
     the computer software giant. Antitrust law has never been 
     construed to say that merely because a firm is dominant it is 
     engaging in illegal monopolistic conduct. If a firm dominates 
     a market because of superior skill or energy, antitrust steps 
     aside. If, however, a firm engages in unreasonably 
     exclusionary or anticompetitive activities to stay on top, 
     that kind of behavior will be challenged. The rationale is 
     that monopolies tend to stifle innovation, which in the long 
     run hurts the economy and the consumer.
       Our new high-tech economy presents a difficult challenge 
     for antitrust. On the one hand, high-tech companies like 
     Microsoft have been on the cutting edge of innovation, 
     transforming our economy, generating jobs and wealth, and 
     boosting our competitiveness in the global marketplace. On 
     the other hand, high-tech companies, particularly those that 
     enjoy a dominant market position, may have opportunities to 
     exploit consumers and crush potential rivals. The concern in 
     the Microsoft case, for example, was that the company was 
     using its dominance in the computer software industry to 
     squeeze out competitors in the market for Internet software.
       Government regulators have tried to strike a balanced 
     approach in this area. They recognize that the high-tech 
     industry is different--that companies must constantly 
     innovate to stay ahead of their competitors and that 
     government does not want to interfere with this beneficial 
     process. They reason, nonetheless, that the high-tech sector 
     is not immune to the risks associated with monopolies, and 
     will take steps to ensure that companies play by the rules.
       Conclusion: I accept the need for antitrust enforcement. 
     After all, the economy is in the midst of an unprecedented 
     wave of mergers. Antitrust authorities should review the 
     competitive effects of proposed mergers, provided such 
     reviews are based on facts and careful market analysis, not 
     ideology. The government must be careful not to do more harm 
     than good. Free markets may sometimes fail, but it does not 
     follow that government can make things better.

     

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