Trust vs. Antitrust

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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Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (15)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 12, 2009, at 8:01 PM, lution wrote:

    my bet is the drug/healthcare companies are sitting on ground 0 for the next round of anti-trust digging. Fits right in with the desire by the current administration's universal healthcare and drug expenses. They can't justify taking them over, so they'll hit 'em with lawsuits.

  • Report this Comment On May 12, 2009, at 9:18 PM, xetn wrote:

    We all need to fear the FTC (the KGB) of big government. The above quotes of von Hayek are illustrative of the government intervention does and for further information please read:

    http://blog.mises.org/archives/009929.asp

    This should scare every investor. The nutty "anticapitilists" are in complete charge now and your investments are indeed at risk.

    I am against monopolies that result from government intervention in various ways from passing "fair-trade" laws to invoking tariffs to protect failing business models. Natural monopolies are a result of simply being the best and are a good thing. Just my 2 cents worth.

  • Report this Comment On May 12, 2009, at 9:29 PM, Dannysea wrote:

    Every touch where I have direct control by a govt finger, my costs to the consumer are always 3.5- 5 times higher. And why would this be different?

    When big companies make bad decisions, just like small companies, time will tell: they will fail or succeed. Free enterprise will reward them or go elsewhere for a better/cheaper service or product.

    I know I can find a McDonalds on every corner, but I seek out a better burger every chance I can.

    So goes every product and service.

  • Report this Comment On May 13, 2009, at 1:21 AM, BellasPosting wrote:

    What eBay has done with their payment service, Paypal, is a perfect example of a serious antitrust violation. First, they banned Google checkout on their site. Then they banned cash, checks and money orders. Now the only option for most sellers is Paypal.

    Ebay is pulling a classic tying arrangement. It is almost impossible to buy or sell on eBay without a Paypal account. That is a violation of the Sherman Antitrust Act, period. Let's hope President Obama has the guts to stop companies from stifling competition the way eBay has with Paypal.

  • Report this Comment On May 13, 2009, at 10:15 AM, BruceSto wrote:

    One of the reasons that government has pursued anti-trust cases in the past is to prevent companies from becoming so large that if they were to fail, the whole economy would fail also. We are currently in that situation and need the government to devise a means to get these super-companies to be sized more appropriately.

  • Report this Comment On May 13, 2009, at 1:15 PM, Masterofdabull wrote:

    I disagree about the Sirius XM example above. This would be an example of the FCC doing do diligence. The issue has to do with satellite expense more than competition between land businesses. For a competitor to break into the business, the costs might be prohibitive. I do agree that too much time spent on small to medium size businesses should not be a flag for the SEC or any other regulatory board to take more time to approve or disapprove a deal. An increase in the number of SEC investigators would be a plus, maybe then these crooks like those of the recent past would be discovered early enough to make a difference.There should also be rules about the time between working for the SEC and businesses.

  • Report this Comment On May 14, 2009, at 1:33 PM, rfaramir wrote:

    Alyce and xetn are so right to quote the Austrians, like Hayek and Mises. The more I read them the more I understand about economics in general and especially about the causes of this crisis.

    I used to think that antitrust was a generally good thing, but now I'm definitely more free-market than ever before.

  • Report this Comment On May 14, 2009, at 2:56 PM, warrl wrote:

    For strange antitrust proceedings, how about the FTC's prosecution (recently abandoned) of Rambus. After the longest and most expensive investigation in the FTC's history, their own Administrative Law Judge issued a decision exonerating the company and all but accusing the complainants of using the FTC as a tool in their own antitrust conspiracy - and the Commission overruled that decision to find against Rambus, only to be slapped down in an appeals court.

    Meanwhile the companies that Rambus allegedly committed antitrust violations against, were over at the Justice Department negotiating their own guilty pleas for antitrust violations - including price-fixing conspiracies on Rambus branded product designs - and lining themselves up to pay some of the largest fines for antitrust violations in US history.

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