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“ANTITRUST” mentioning the U.S. Dept. of Justice was published in the Extensions of Remarks section on pages E619-E620 on April 22, 1998.
The publication is reproduced in full below:
ANTITRUST
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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.
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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