Merger Guidelines published by the FTC and the Justice Department, “For more than 95% of the transactions reported … the Agencies promptly determine … that a substantial lessening of competition is unlikely.”12 During fiscal 2005, notices of 1,695 proposed mergers were filed. The FTC challenged 14, and the Justice Department challenged 4, a total of 18 out of 1,695, or 1.06 percent.13 There is no way to tell which mergers will be allowed and which will not. The process will be examined in more detail in Chapter 6.
No Clear Rules—Arbitrary Decisions
Lacking any coherent, ascertainable rules in the written antitrust statutes, judges and other government officials make arbitrary decisions using antitrust doctrines based on a faith not easily overcome by reason, logic, or empirical data. There is no need to explain decisions not made. A contract, a “monopoly,” or a merger permitted requires no explanation. Most corporate mergers reviewed by the government are cleared without question or explanation. Only attacks call for justification. If the decisionmaker wishes to disapprove, the language of antitrust is there to justify the disapproval. Metaphorical labels such as “the market” are used as though they are factual descriptions. Antitrust doctrine containing a prohibition is recited. The disapproval has been rationalized.
The success of Microsoft Corp. came at the expense of some of Microsoft’s competitors—losers in the marketplace who sought government action against a winner. Interest was first aroused at the FTC, where two commissioners favored action, two favored doing nothing, and the fifth declined to participate. The assistant attorney general at the time was an activist new to the job. She took over the matter and persuaded Microsoft to make some changes in its method of doing business. That agreement was presented to a district court for adoption as a consent decree without any findings of fact. The district judge to whom the case was assigned had read some books about computers. On the basis of such reading he rejected the decree as inadequate.14 A reviewing court of appeals said it was the job of the attorney general, not a district judge, to decide the adequacy of such decrees.15 The appeals court sent the matter back to a different district judge.16 That judge later denied a contempt petition, issued a preliminary injunction, and referred the case to a special master,17 a decision reversed by the court of appeals.18 Meanwhile, the Justice Department began an entirely new, somewhat broader, proceeding that resulted in a district court’s issuance of 400 or so “findings of fact”19 and then a memorandum and order, in which the judge confessed an inability to determine what to do because of divergent opinions about the future.20 He concluded that “plaintiffs won the case, and for that reason alone have some entitlement to a remedy of their choice,” including breaking up the defendant.21 That remedy should be adopted, he said, because it was urged by government officials “in conjunction with multiple consultants,” and such officials are expected to act in the public interest, whereas the defendant is not.22 That order was vacated by the court of appeals.23 The court recited prevailing doctrines of market definition and power, which contain assumptions about a future that no one can know but could be applied to the Microsoft case because of the phraseology of the district judge’s findings of “fact.”24 Assisted by some notions about “short term” and “long term” and some fine distinctions between “procompetitive” and “anticompetitive” conduct, the Court labeled Microsoft, like the legendary Standard Oil, a monopolizer and as such prohibited by section 2 of the Sherman Act.25 The Justice Department abandoned any further attempt to break up the company but did insist on several regulatory restrictions to protect complaining competitors.26
Futility of Reform
Attempts at reform or repeal of the antitrust statutes are futile as long as faith in Antitrust with a capital “A” is preserved. Provisions of the antitrust statutes contain words without definition, but, except when amended by Congress, at least the words are fixed. One can look them up and write them down. Antitrust, the mystique, is a different matter. One cannot look it up. Joel Klein, while serving as assistant attorney general in charge of the Justice Department’s antitrust division, described the antitrust laws as “common law statutes.” He said to a meeting of antitrust lawyers, “You know, so much of litigation in the Supreme Court, or whatever, will be on what exactly are the words of the statute. But in antitrust it really is much more dynamic.”27
The antitrust lawyer must learn a special vocabulary not found in the U.S. Code. Observable phenomena are described by metaphors, which are not scientific labels of real-world data but artificial concepts, like “market” and “market power.” Antitrust experts speak a sort of poetry. Journalists and politicians take it as a description of reality. The public is confused. Antitrust concepts give a sinister characterization to the ordinary phenomena to which they are applied. “Oligopoly” is a good example. People who are learned in antitrust vocabulary know that an oligopoly is simply any number of sellers more than one—a common situation, but it sounds to the average citizen like a nasty condition and cause for concern.
Fashions in antitrust concepts change even when the statutory words don’t. Some terms achieve acceptance for a time but then lose their appeal and are abandoned. “Reciprocity” is a good example. At one time the FTC chairman saw reciprocity as an evil of great potential, warning that it “could result in closed-circuit markets from which medium or small factors are excluded” and, “thus oligopoly would be magnified in a sort of circular integration fashion … foreclosing the opportunities of firms without substantial market power to gain access to the inner circle of firms.”28 At about the same time, the head of the Justice Department’s antitrust division stated that “there is a legitimate basis for attacking reciprocity, not only under section 1 of the Sherman Act…butalso under section 2 … as an unlawful attempt to monopolize.”29 Some hand wringing occurred, but the attack never came. Eventually, it became clear to everyone that the nation is not in any danger if businesspeople tell each other: “I’ll buy from you if you buy from me.” Also, the word got around that it isn’t a very effective way to do business anyway, so we just don’t hear much about it anymore.
“Conglomerates” had a longer run as antitrust witches. Having succeeded in obtaining Supreme Court declarations that virtually all mergers of competitors as well as those of customers and suppliers are prohibited by section 7 of the Clayton Act, the government harassed “conglomerates.” In addition to court proceedings to prevent corporate acquisitions by conglomerates, both the FTC and the Justice Department conducted highly visible investigations of those that merely existed. The campaign was eventually abandoned. Many of the most feared “conglomerates” later shed their acquisitions or went out of business altogether without any help from government.
A key concept that currently has a firm grip on the imagination of the antitrust community is the concept of “market power” (see chapter 4). “Market power” is an imaginary concept borrowed from theoretical economics. It incorporates assumptions and predictions but is used by the antitrust community as though it describes facts subject to proof.
Antitrust as faith endures not because it has a fixed basis in science or reason but because it does not. Faith in antitrust allows the pursuit of mutually exclusive goals. It serves the human desire for both justice and “fairness.” The attempt to rationalize antitrust as consumer welfare economics has eliminated some of the glaring irrationality of interpretations of the antitrust statutes. Antitrust doctrines have been tidied up, but no amount of economic theory can resolve the basic conflict inherent in the human desire for both efficiency and fairness—goals that are often incompatible. The antitrust religion allows the pursuit of both goals simultaneously. It also avoids facing three real issues: (1) how to state a normative rule that distinguishes between contracts that unreasonably restrain trade and those that do not; (2) how to distinguish between willful acquisition of “monopoly power” and being an effective competitor; and (3) how to tell whether a merger may substantially lessen competition.
