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Trust and antitrust

CONGRESS should proceed very carefully indeed before it acts on the President's ``wish list'' of changes in federal antitrust law. The most controversial proposal would call for the Justice Department to file suit to block a proposed merger only when there is ``substantial probability'' that the merger would lessen competition within an industry. The law currently calls for the Justice Department to act in cases where a merger ``may tend to lessen competition.''

In practice, this more general wording has given the department a lot of room for discretion. Administration supporters trying to rack up points for moderation argue that the proposed change would merely codify the status quo. They are right -- if they mean the status quo under the current administration.

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Antitrust enforcement has had vigorous bipartisan support over the years. But Attorney General Edwin Meese and Commerce Secretary Malcolm Baldrige argue that the antitrust laws on the books are relics of an era gone by, and that for today's global trading game, a new set of rules is needed.

World trade patterns have indeed changed. But it's not clear that allowing mergers helps firms compete globally.

Some mergers clearly do work; the most effective seem to be those between companies in related industries. But on average, mergers have not been shown to make for more-efficient companies. Studies of mergers in various European countries, with different antitrust laws, show a similarly mixed record.

A study of highly concentrated US industries (dominated by firms produced by major mergers during the first quarter of this century) shows that when a few players dominate, the tendency is not for more price competition -- and consumer benefit -- but less. The fewer the players, the greater the tendency to keep prices, wages, and profits high and to let market share be eroded over time by imports.

In other words, when anticompetitive mergers are allowed, the tendency is to squander whatever advantage derives from bigness on short-term gain.

Competitiveness is not the only problem with mergers. Some are simply not thought through very carefully. Innovations and job creation tend to come from smaller, not larger, firms. Many of these corporate marriages start off groaning under a major burden of debt, which pulls out of the capital markets money that could go to support more obviously productive ventures. Conglomerates often end up with two or more classes of employees -- those originally hired by the acquiring company, and those hired by the acquiree.

Antitrust laws and vigilant enforcement are still relevant.

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