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Psst, Mr. Crovitz: There's a baby in that bathwater! Gordon Crovitz argued in The Wall Street Journal that because there are problems with antitrust enforcement, we should abandon it. The corollary is that because there are problems with criminal enforcement (some guilty walk, some innocent are jailed) that we abandon the nation's criminal laws. With all due respect, you're wrong. At the inception of the Sherman Act in 1890, people -- including legislators -- were afraid that big corporations were bad, and that small consumers would be exploited. The law is one of the most vague federal laws and has been clarified through judicial decisions for well over a decade, with the courts initially stopping mergers with less than 20% market shares, as in the precedential Brown Shoe case. But in 2005, a federal court approved, after an investigation at the Justice Department and a fast-tracked trial, Oracle Corp.'s (NASDAQ:ORCL) acquisition of rival business software company PeopleSoft. The process including judicial review in that case didn't derail a high-tech deal. You contend that "months" of investigation will somehow undermine the value of the teaming agreement between Microsoft Corp. (NASDAQ:MSFT) and Yahoo! Inc.(NASDAQ:YHOO). First, and foremost, it's worth noting that the arrangement probably could have been structured in a way that the companies could have implemented the arrangement first, and allowed the government to simultaneously pursue the investigation: It's hard to get an injunction against an uncertain, arguably benign business arrangement. The companies likely factored in litigation risk, and decided to delay until the Justice Department's antitrust review is final. But the length of the investigation is likely to have little effect on either company, or on Google Inc. (NASDAQ:GOOG), the largest company in the market competing with Microsoft and Yahoo!. We're not talking years, and the Internet, I'll bet, will be around six months from now. And maybe you've missed the fact that while Google is dominant in the search advertising area, where Microsoft and Yahoo! are trying to spread their wings, both companies are large, growing companies who are aggressive competitors. It behooves the government to take the time to assess whether the companies could use this agreement to undermine competition in some way. The government -- especially the Federal Trade Commission -- has won federal court support for its decisions to block mergers even in the high-tech arena, after convincing a judge that the deals could harm consumers. Take a look at the FTC's fight to stop a deal between CCC Information Services Inc. and Mitchell International Inc., two of only three nationwide companies selling software that estimated post-collision repair costs to insurance companies. The deal would have given one company more than 70 % market share, in a market that already has 80% profit margins. U.S. District Court Judge Rosemary Collier agreed that the deal could harm consumers, and effectively scotched it. She saw the baby in your bathwater. By and large, today's government antitrust lawyers, and the cadre of staff economists who evaluate markets and consider the implications of changes in competition, are well trained, intelligent and diligent. A few months' delay isn't a reason to eradicate antitrust from the regulatory landscape. One final thought: Antitrust laws can act as a signaling device for the market. If you had a dime invested in American International Group Inc. (NYSE:AIG) after 2006, I have little pity. AIG was part of a conspiracy of bid-rigging and admitted it misled both investors and regulators, writing the following as a portion of its corporate apology in the New York State investigation, along with paying nearly $1 billion in fines: AIG regrets and apologizes for the conduct that led to the action brought by the New York Attorney General and the New York Superintendent of Insurance and to today's settlement. Providing incorrect information to the investing public and to regulators was wrong and against the values of our current leadership and employees. Maybe there should have been more investigating in 2006, not less. - Cecile Kohrs Lindell See Crovitz's column from The Wall Street Journal Cecile Kohrs Lindell is a senior reporter responsible for antitrust news in The Deal's Washington bureau.
CategoriesComments
From: Spa Pas,
The bigger issue that our esteemed Rhodes Scholar Mr. Crovitz misses completely is that software needs antitrust oversight MORE than industrial companies.... a) It is a zero marginal cost product thus highly prone to predatory pricing b) It has properties of network economics further making new entrants difficult but also creating great incentive for misbehavior (and the benefits of pure size) to achieve the network economics c) It lends itself very well to extension thus cross-subsidization of a monopoly/market share in one place into others THe three combined lead to a very anti-competitive marketplace overall. In 5 years this is all going to be very clear as the maturing industry culminates in a highly concentrated market (similar to railroads, oil, steel, etc. 100+ years ago) We saw this with Netscape. If we tossed antitrust law Microsoft would *never* had allowed you to easily use Google over MSN. Then again perhaps you believed MSFT's claims that there is no way to separate the browser from the OS? In fact there should be much more vigorous enforcement of antitrust - any time Microsoft "gives" away software to win business they are cross-subsidizing from their monopoly businesses to others and harming competition. If MSFT wants to be in other businesses they should have to bear the burden of keeping them separate on individual P&Ls - versus putting the burden on other firms to prove that they are cross-subsidizing from one to the other. For example - Xbox and Bing. They can only afford to invest in those businesses the way they are due to their monopoly profits. And while one might think that is creating new competition....it isn't if it is with the intent of predatory competition. We need to change the way all of this works from one where the big monopolist is "entitled" to enter new markets and instead has to invest in arms-length independent companies. This was the right approach with AT&T/Kingsman agreement.
Posted on:
August 4, 2009 3:13 PM
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Actually, you can say something even sharper about this particular case. Absent antitrust, the deal would have been Google-Yahoo!, not Microsoft-Yahoo!. That is the deal that Crovitz has to defend, not the easy one. For more, see http://uchicagolaw.typepad.com/faculty/2009/08/is-there-really-an-antitrust-anachronism.html .