The European Union has long been aggressively using its anti-trust laws to go after large companies who may be abusing their marketplace dominance while the United States has been more inclined to look the other way. There have been recent signs, however, that a convergence is taking place.
Traditionally, Republican administrations have been business friendly and have looked favorably on arguments from big business that mergers provide efficiency in the international marketplace. Certainly, the Bush administration took that approach. With the election of Barack Obama and the return of Democrats to power, the tide seems to have turned.
Christine Varney, a former Federal Trade Commissioner under Bill Clinton, has come aboard as the Assistant Attorney General for Antitrust and has gone after the airlines and the telecommunications industry. Diane Bartz for Reuters:
In the two months since Christine Varney took over the Justice Department’s antitrust division, it has also opposed antitrust immunity for Continental Airlines Inc to join UAL Corp’s United Airlines and others in the Star alliance, and began probing a class action settlement that would allow Google Inc (GOOG.O) to digitize millions of books.
This is a big change from the Bush administration, when antitrust regulators were criticized for approving deals like the merger of appliance rivals Whirlpool and Maytag in 2006 and the 2008 merger of XM and Sirius, the only two U.S. satellite radios.
Varney said in early May that she planned to take a more aggressive approach with dominant firms which use their market power to crush competition.
Smaller telecommunications firms have long complained that the giants — AT&T and Verizon Communications — used their market share to squeeze out smaller rivals by refusing roaming data deals. “What you may not be able to do is get email on a BlackBerry (outside of a certain range),” said Eric Graham, vice president of government relations for Cellular South.
Even companies with close links to the Obama administration are facing tougher scrutiny. Google, whose chief executive, Eric Schmidt, was an avid Obama supporter, is among the big tech businesses now under investigation for possible pacts to refrain from poaching one another’s talent. Search engine rival Yahoo Inc, computer and music player maker Apple Inc (AAPL.O) and biotech company Genentech, now owned by Roche Holding AG, have been notified of a formal probe.
Varney has criticized the Bush administration for failing to scrutinize mergers by companies in the same supply chain. While she did not mention it by name, the antitrust division is looking at a proposed merger of Ticketmaster and Live Nation, the world’s largest concert promoting company, in what most consider a vertical merger.
Pharmaceutical makers are seeing the tide turn against deals in which a brand name company pays a generic rival to delay entrance of a cheaper version.
In the Continental Airlines case, the Department of Transportation has stepped in to oppose the antitrust action and appears likely to carry the day. The U.S. airline industry has been in poor financial health for decades and consolidation is viewed as the only remedy.
But the general trend toward tighter regulation of corporate power will doubtless continue, at least so long as Obama and a Democratic Congress are in office. Not only are they ideologically less favorable to business, but they blame the current economic crisis at least partly on a too-lax regulatory posture.
As John Jannarone observes at WSJ, “Increased scrutiny doesn’t mean firms will start losing antitrust cases overnight. But the Justice Department might well choose a few big targets to make its presence felt.” Indeed, the mere prospect of a protracted legal fight with an entity that can take on $1.3 trillion in debt in a single afternoon will naturally make even the biggest firms amenable to compromise.
Meanwhile, the EU continues its tougher stance. After having famously beaten Microsoft in court, forcing them to ship the latest iteration of their Windows software to Europe without a browser installed, it’s now going after Phillips Electronics and other companies that manufacture liquid crystal display (LCD) units used in cell phones, cameras, televisions, and computers. Computer processing giant Intel is appealing a recent €1.06bn fine.
Two policy-related thoughts come to mind.
First, while easily understandable from an analysis of domestic politics, a global recession seems like an odd time to take on already-struggling businesses. It’s not as if airline tickets, electronic gadgets, and microprocessing power are areas where innovation has stopped or prices are escalating.
Second, given that it’s nonetheless happening, this philosophical convergence provides and opportunity to find common ground so that businesses on both sides of the Atlantic can play by the same rules. Given that we’re in the era of Too Big to Fail, perhaps we can come to a transatlantic record on the point at which companies become Too Big to Exist.
James Joyner is managing editor of the Atlantic Council.