Word has it that the Obama administration plans a tougher stance on antitrust enforcement than the Bush administration advocated. I know a lot of people would like to think anything that’s changing the previous administration’s ideas must be a positive change. However, let’s hope the changes don’t leave us with a weaker, less competitive economy, a result we can ill afford these days.
Weird moments in regulatory scrutiny
Although news coverage points out that the Bush administration’s antitrust policies, released in a report in September, advocated a hands-off approach and the Obama administration’s plans represent a reversal, there were some good examples of frustrating antitrust pursuits that made little sense during the supposedly “hands-off” Bush administration. (The Federal Trade Commission, which along with the Justice Department examines antitrust concerns, actually rejected the Bush administration’s hands-off stance.)
For example, the FTC’s dogged antitrust proceedings against Whole Foods Market (Nasdaq: WFMI ) over its acquisition of Wild Oats Market was nothing short of absurd. When the news first broke, I wondered what planet FTC employees lived on, if they didn’t see the kind of competition Whole Foods Market faces. Although Whole Foods and the FTC recently settled their dispute, the Wild Oats acquisition has proved to be a hindrance, and not a help, to Whole Foods, and guess what -- it's been clear there’s plenty of competition from everyone from conventional grocers to mom-and-pop shops.
And why on earth didn’t the FTC ask for more documentation than it did when ExxonMobil (NYSE: XOM ) hooked up? That’s what Whole Foods’ CEO John Mackey contended at the time.
Or how about the long delay in the Sirius XM (Nasdaq: SIRI ) combination due to the FCC’s concerns about the formation of a satellite radio monopoly? That regulatory mindset was, again, absurd, since Sirius XM has plenty of competition for listeners in the form of terrestrial radio, Internet radio, and even Apple’s (Nasdaq: AAPL ) music products.
Microsoft (Nasdaq: MSFT ) has certainly displayed what one could call monopolistic tendencies over the decades. I doubt any of us have forgotten the landmark EU ruling about some of its practices, or how the U.S. government sued it during the Clinton administration, or the fate of the Netscape browser. But the computer giant’s lost its edge recently; for example, Apple has done a darn good job of pushing its own computer products, and that speaks to true competition.
We should cast scrutiny on such interventions; regulators’ interpretations may not reflect true competitive landscapes. They also make conspiracy theorizing a little too easy when you start to wonder why certain companies get targeted and not others.
Reasons for concern?
Despite tough talk about the Obama administration’s ensuring large companies aren’t unfairly beating up on smaller ones, one might wonder if we’ll see similar regulatory moves that might raise eyebrows concerning what really represents a threat to consumers and fair competition.
For example, the Justice Department recently opened up an inquiry into Google (Nasdaq: GOOG ) , weighing antitrust implications related to Google Books and copyrights. This seemed interesting to me because I had recently read that the Obama administration has appointed to the Justice Department five lawyers affiliated with the Recording Industry of America, or the RIAA, which defends copyright and arguably has often represented the worst in corporate thuggishness, and occasionally outright buffoonery (not to mention hysteria about protecting old-school paradigms instead of actually innovating and pleasing customers). One of the appointees was also the lawyer who headed up Viacom’s lawsuit against Google and represented the RIAA in the famous file-sharing case against Jammie Thomas.
Meanwhile, the idea of tougher antitrust policies may seem a bit hypocritical given the recent massive government interventions into our economy. Talking about the regrettable situation that some companies are “too big to fail” and then encouraging financial corporations to join together to become even bigger entities that also sound arguably even more “too big to fail” (think Bank of America (NYSE: BAC ) and its notable takeover of Merrill Lynch and Countrywide) might make one think that whether certain companies are becoming too powerful or influential may depend on who’s doing the judging. It should be interesting to see whether the tougher antitrust scrutiny will extend to that industry, which has seen consolidation into bigger behemoths with the government’s blessing (and in some cases, apparently the government’s insistence).
Help or harm?
Economic philosopher Friedrich von Hayek pointed out that contrary to conventional wisdom, monopolistic tendencies often grow because of aid from the government. He also pointed out the “carefully fostered belief in the irrationality of our system,” and that sort of thing has certainly recently been exacerbated by our current financial crisis (which, as some point out, government and the Federal Reserve’s policies had a hand in, too, although many people would prefer to blame the market’s irrationality entirely).
Letting failed companies fail is actually very rational, and we’ve already seen way too many examples of true competition being thrown out the window as the government intervenes to save certain companies from failure -- the bailout nation that we’ve become is by no means a good precedent for a thriving and competitive economy, and confidence games don’t build trust. Creative destruction is part of a vibrant economy.
I fear that too much antitrust enforcement -- particularly if it’s misguided and artificially intervenes in the real competitive landscape -- will harm us more than help. Maybe the Obama administration’s antitrust regulators will get it right, but investors need to keep a close eye on whether such moves are going to weaken our companies -- and economy -- even further. Let’s hope not, but I fear it’s a slippery slope.
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