nternational Competitiveness?

DianeP. U-Ood is

Professor of

Law

and

Associate Dean at

the

University of Chicago

^Law

School.

s Antitrust the Villain of

nternational Competitiveness?

Diane P. Wood

Many people

^{have been}

wringing

their hands in^recentyears^overthe

supposed

^declineintheinternational

competitiveness

^ofAmerican compan­

ies. Asthe

problems

^{haveincreasedin}

severity,

the number of

culprits

^has also

multiplied.

^Some

point

^tothe

absenceofa"level

playing

^{field" for}

us. firmsⁱⁿ

foreign

^marketsand

argue^thatthetradelaws shouldbe stronger; ^somebemoan the lackof strong

protection

^forintellectual property

rights

^{both athome}

^and,

even moreso, abroad; ^andsome believe that the

principal

^{villainis the}

antitrust lawof the United

States,

written and

developed

^{at atimewhen}

rivalry

^from

foreign

^firmswas

vastly

different from what it is

today.

My

^{theme isa}

simple

^{one: itis}

misguided,

^and

ultimately

^counter­

productive,

^{toblameantitrustfor}

everything

^{that is}

going

^{wrong. The}

problem,

^{tobesure, is arealone.}

Complaints

^{about the}

endangered

or

declining competitiveness

^ofUS.

firms in the face of

global

^markets

have becomea

mainstay

^of

political

rhetoric. As

imports

^{invade the}

UnitedStates^{at an}

ever-increasing

pace, andexports^failto

keep

^up,

many

people

draw the conclusionthat US. firmshave losttheir

preemi­

nence, that their

products

^aresecond­

rate, ^andthattheinnovativeness

neededto

regain

^market

^position

^is

lacking. Naturally,

^these

troubling

conclusionshaveledtointensive searches for the^cure. One ofPresi­

dentBush's firstactswastoestablish

aCouncilon

Competitiveness,

chaired

by

Vice PresidentDan

Quayle,

^whichis

charged

with inves­

tigating

^this

problem

^and

finding

feasible solutions.

In a

speech

^deliveredon

June

^20,

1989,

^{totheNational}

Foreign

^Trade

Councilandthe National Association of Manufacturers Coalition^for

Employment through Export,

^Vice

President

Quayle

^{blamedthe anti­}

trustlaws fora

significant

part^of America's

competitiveness problems.

He called

specifically

^for

reevaluating

the

private

^treble

damage action,

merger law

reform,

^{andmorelenient} rules forintellectualproperty^licenses.

Itis

important

^tonote,

however,

^that

he didnot

lay

^{the entire}

problem

^at

the feetof the antitrust laws. ^Interna­

tional

competitiveness,

^he

noted,

^is

alsoaffected

by

^the

government's

fiscal

policies,

^thewaythe United States handlesresearchanddevel­

opment^of

biotechnology,

^andthe

country's

educationalsystem.

The Vice President'sremarks reflectwhat I would liketocall the

myths

about antitrust and its respon­

sibility,

^orlack

thereof,

^{for theinter­}

national

competitiveness

^ofAmerican

firms. These ideasare

myths,

^{in the}

true senseofthe word. This doesnot meanthat

they

^containnota

grain

^of

truth; certainly,

every

myth

^{is based}

insomesenseonultimate truth.

Just

^as

surely, however,

^most

myths

are

elaborated,

somewhat fanciful versionsof that truth. I would liketo

examine ^more

carefully

^theextentto

which^wehavea

competitiveness problem,

^the

myth

^andthe

reality

^of

the effect antitrust laws have ^onthat

problem,

^andsomeofthe

policy

responses that will

help

^{us tobe}

vig­

orousand successful

competitors

^at

the

global

^level. This examination shows that

today's competitiveness problems

^have

little,

^if

anything,

^to

dowith the U. S. antitrustlaws. ^The

future

shape

of antitrust _mayaffect tomorrow's

competitiveness,

^{but it}

isnot atall

obvious-indeed,

^{it is}

probably

wrong^tothink so-that the absence of antitrust laws would

give

risetostrong,

efficient,

^{andsuccessful} compames.

It doesnottake the

perceptiveness

ofa

newly

^awakened

Rip

^{Van Winkle}

toseethe

magnitude

^{of the}

change

overthe last several decades in the

importance

^ofinternationaltrade for the US. economy. In

1972,

^the

import penetration

^{ratio formanufac­}

tured

products (ratio

^of

imports

^to

total

shipments plus imports)

^was6.1

percent. ^That

figure

^{rose to 7}percent in

1977,

^8.5percentⁱⁿ

1982,

^and

12.9percent^{in 1987. Insome indus­}

tries,

^the

change

^{was evenmore} pro­

nounced. Nonrubberfootwearsaw a

shift from 17.1 percent ^{in 1972to} 62.4

percent

ⁱⁿ

1987; engineering

^and

scientific instruments

changed

^from

12.5 percent^{in 1972to30.6}percent in

1987;

^andtoys^and

sporting goods changed

^{from 13} percent ^{in 1972 to} 41.8percent^{in 1987.}

Exports,

^asthe

tradedeficit

grimly indicates,

^have

not

kept

pace. Wehave watched the deficit grow from

$2.3

billionin 1971 to

$128.1

billionin 1988. The message^seems

inescapable:

^the

United

States,

^ormore

particularly

US.

firms,

^havenotbeen

winning

the

competitive

battle with their Pacific

Rim, European,

^orother

foreign

^rivals.

The

explanation

^{for this}

experience might

^befoundinone or moreof fourreasons:

Reason 1: "It'sour ownfault."

US. firmsno

longer produce

compet­

itive

products,

for several

possible

reasons,

including

insufficientinnova­

tiveness,

lack of attention to

quality control,

^{failureto take a}

long-term

business

perspective,

^{and lackof}

understanding

^of

foreign

^markets.

Reason 2: "It's the U.S. Govern­

ment's fault." U.S. firmsoperate^at

abuilt-incost

disadvantage

^vis-a-vis

their

foreign

rivals because ofavari­

ety^of

governmental impediments, including

^strictenvironmental

laws,

worker

safety requirements,

^the

expensive

^US.

legal

system

(particu­

larly

^the

products liability regime), and,

^ofcourse, the antitrust laws.

Reason 3:

"Foreign

^firmsareto

blame because

they

^don't

play by

^fair

rules.^"

Foreign

^firms

enjoy

^{an unfair}

cost

advantage

^because

their.govern-

ments confer generous subsidies^on

.

their

products, making

^it

impossible

foreven a moreefficient US. rivalto

survive in the market.

Alternatively, foreign

firms engage in ^{other com­}

petitive practices

^{that arebranded}

"unfair," including dumping,

^use

of

exclusionary

^technical

standards, advantageous relationships

^for gov­

ernmentprocurement, ^{and insuffi­}

cientrespectfor the intellectual property^{of others.}

toseizeon one

possibility,

^whether

itis antitrust

law, foreign subsidies,

or

foreign

^marketaccess, and^to attributemostor allof the blame

tothat factor. I donotaccuse the Administrationof

doing

^this. I do say,

however,

^{that both}

Congress

^andthe

Administrationareunder tremendous pressure^toenactthiskind of

quick

fix and that it is

vitally important

^to

continue

resisting

^it.

It isnot clear that antitrust law

Reason4:

"Foreign governments

aretoblame because

they

protect their home markets."

Finally, closely

relatedtoreason

3,

US. firms may be

disadvantaged

^because

foreign

marketsare

deliberately

^closedto

them. Sometimes this is done

overtly, by

^meansofquotas^or

high tariffs,

but^more

commonly

^{it is done}

subtly, through

^the

myriad

nontariff barriers that exist

throughout

the world. No

onewouldcareabouta great^vol­

umeof

imports if,

^{atthe same}

time,

agreat^{volume of}exports^were

flowing

^out.

The

policy

response ^tothe

problem

ofinternational

competitiveness depends entirely

^{on theextent to}

which eachoneofthesereasons

(or

othersnotmentioned

here)

^accounts

for thepresent ^situation.

Nothing

could be more

self-defeating

^than

-

...

J .;»:

...

:-:.-�:::::

^...;r:-�-""-'"^-"

belongs

^{at all inthe listsetforth}

above.

Nonetheless,

^{I include it}

becauseonecontinuesto hearthat it has^a

chilling

^{effectonthe kinds of}

business decisions mentioned in the Vice President's

speech.

^Withthat

in

mind,

^itis

helpful

^tolookmore

specifically

^attheways inwhich anti­

trustis

alleged

^{tohave a}

negative

effecton

competitiveness,

^andto

consider theextenttowhich these

charges

^{are true.}

Both the existenceofstrong

(at

leaston

paper)

antitrust lawsand

specific

aspectsof those laws have often been saidtoput^{US. firms ata}

disadvantage.

Fears of excessive or

inappropriate

^antitrustenforcement

led,

^for

example,

^tothe issuancein 1977 of the

Department

^of

Justice's

first Antitrust Guide for International

Operations. Responding

^tothecon-

tinuing

^demandforreassurance,the

Department

^of

Justice

issued revised Antitrust Enforcement Guidelinesfor International

Operations

^{in 1988.}

Thelate

Secretary

^ofCommerce,

Malcolm

Baldridge, occasionally

called forthe

repeal

^{ofSection 7 of}

the

Clayton

^{Act, andonecontinuesto}

see similar anti-antitrustrhetoric in the academic and

popular

pressfrom timetotime. The

prevalence

^ofthese

statementsmakesitworthwhileto

review what the critics^are

saying

about antitrust inmoredetail. These

arethe

myths

^ofantitrust and inter­

national

competitiveness

^{towhich I} referred above. Iwill firststatethe

current

myths

^andthen

analyze

^them

in detail.

•

Today's competitiveness problems ^{have little)} if anything,

^to

^{do with the Us.}

antitrust laws.

•

Myth

^1.

Only

^us.

firms

^must

conform

their behaviortostrictantitrust laws. This

point

^{is a}broadside attackonthe antitrustlaws. Itsproponents^assert that

foreign

^{firms are}unconstrained,

ormuchlessconstrained, ^{in their} business decision

making,

^because

theircountries donothave

meaning­

ful antitrust enforcement.

Coopera­

tivearrangementsbetween firmsare

therefore

arranged

^more

easily;

merg­

ersand other consolidations maytake

place

^inan

unregulated atmosphere;

and distributional restraints are

entirely

market driven.

Myth

^{2. Privatetreble}

damage actions, unique

^{tothe United}

States,

^are

diminishing

industrial

productivity.

This accusation linksthe

availability

^of

private

enforcementofthe antitrust laws to

impaired productivity.

^{It focuses}

in

particular

^{on the}

availability

^of

triple

^themoney

damages suffered, although

^one

might

^{alsoincludethe}

private party's ability

^toobtaina

court

injunction,

^{and insomecir­}

cuits,

^eventoobtain divestitureafter

anunlawful merger. In the final

analysis,

the argument has^todo

with

optimal

enforcement levels.

Treble

damages,

^{it is}

argued,

^leadto

overenforcement of the laws. Over­

enforcement in turnmeansthatU.S.

firms

(and

^nottheir

foreign rivals)

^are

spending

dollars and time^on

litiga­

tion insteadof^{on more}

productive

activities.

Myth

3. Antitrust

scrutiny of

mergers and

acquisitions

^is

preventing efficient

^transac­

tions

from taking place. According

^tothis

myth,

^{themarket for}corporate^con­

trol is still distorted

significantly by

the fearthatanotherwisedesirable transaction willbethwarted because of antitrust

problems.

^Thiscan

hap­

pen in^oneof^twoways: eitherfirms will

reject

^a

proposed

transaction

during

^the

planning phase, following

advicethat theantitrust laws would

prohibit it,

^orfirms will go forward withtheirdeal andfindthemselves suedeither

by

^agovernmentagency

(usually, though

^not

always,

^the

Department

^of

Justice

^ortheFederal

Trade

Commission)

^or

by

^a

private

party. ^Excessive

caution,

^{for thefirst} type^ofcase,^{or a}

misapprehension

of

competitive

consequences, in the secondtype^{ofcase,leadtothe harm} identified here.

Myth

4. Antitrustpreventsdesirable licens­

ing

arrangements

for

intellectualproperty.

Intellectualproperty^ownersinvest substantial resourcesin the

develop­

mentof

intangible

property

rights.

Often,

^{the most}efficient way^to

exploit

^those

rights

^istoconfera

limited

privilege

^{onotherstouse}

them, through

^a

licensing

arrange-^. ment.To theextentthat antitrust law standsas anobstacletorestrictionson

licenseeuseof the property,

including price

restrictionson

resulting prod­

ucts, territorial

restrictions,

^restric­

tionson

grant-backs,

^or

others,

^it

reducesthe initialincentiveof the licensortoinvest ininnovative activities.

Myth

^{5. The Us.} antitrust lawsaretoo

insular, condemning

concentrationin Us.

marketswithout

recognizing

^thetrue

global

nature

of

^markets.

Competitive

^conse­

quencesforantitrust purposes^must almost

always

^be

judged

^intermsof

particular

^relevant

markets,

^unless the

anticompetitive impact

^canbe

observed

directly.

^The

tendency

still

exists,

however,^tothink

only

^of

competition

^from within the United

States, overlooking

^the

diversity

^and

strength

^of

competition

^fromabroad.

Thiserrorleadstothe condemnation of arrangements that^are

inherently

unabletohave anadverse effecton

competition,

^andthat

might

^have

beenefficient.

Most,

^ifnot

all,

^ofthese

myths

^had

asolid

grounding

ⁱⁿ

reality

twenty

or

thirty

yearsago;

today's reality

^is

quite

different. Totheextentthat these

myths

^donotdescribe antitrust rulesand enforcement

practices,

"reform"ofthe antitrustlawsisnot

likely

^to

improve

^ourinternational

competitive position. Only

^afterwe

setthe record

straight

can we con­

sider what

changes,

if any, wouldbe desirable.

1. Other^antitrustlaws.

Immediately

afterWorldWar

II,

^{itwastruethat}

mostother countries didnothave laws liketheU.S. antitrust law. When such laws existed^onthe

books,

^{as was}

thecasein

(for example) ^Canada, occupation Japan,

^and

occupation

West

Germany,

enforcementpatterns

were

utterly

^{different. U.S. firmswere}

atthe samekindof

disadvantage

^that

later

emerged

^{under the}

Foreign Corrupt

Practices Act: their actions hadtoconform tostandards from which otherswere exempt.

Today, however,

the situationis

quite

^{different. The}

competition

^rules

ofthe

European

Economic Commu­

nity,

^setforthin Articles 85 and 86 of the

Treaty

of Rome and

implemented by

^the

European

Commission, ^are

comprehensive

^andstrong. ^{It isnot} uncommon, in

fact,

^for

practices

^now

tobecondoned inthe^United States that the Commission wouldcon­

demn.

Recently,

^{in the JiVtJod}

Pulp

case,^I the

European

^{Court of}

Justice

took

important

stepsⁱⁿthe direction of

asserting

^{thesame kindofextrater­}

ritorial enforcement

jurisdiction

^as

theU.S. does: that

is, jurisdiction

^to

regulate

arrangements^outside the country that ^{arecarriedoutin} part withinthecountry^orthat otherwise

directly

^and

substantially

^{affect the} country. ^{From a}substantive stand­

point, European

^{firms facea}

regula-

IA. Ahlstrom

Osakeytio

^{v. EC}

Commission,

^{CaseNo. 89/85}

(Ct.

^of

Just.

^ofEur.

Communities, Sept. 27,

1988).

tory

regime

very similartothat faced

by

^{US. firms.}

National laws havealsobeen

strengthened

^alloverthe world. The

competition

^lawsofthe Federal

Republic

^of

Germany

^{have been}

regarded

^asamong the world's

toughest

^foryears.

Canada, France,

and the United

Kingdom,

^to

name three other

countries,

^have

strengthened

^their

competition

^laws

inrecentyears. The

Organisation

^for

Economic

Cooperation

^and

Develop­

ment

(OECD)

includes restrictive business

practices

^{in itsGuidelinesfor}

Multinational

Enterprises, calling

^on

enterprises

^to "refrain from actions which would

adversely

^affect

competi­

tioninthe relevant market

by

^abus­

ing

^adominant

position

^{of market}

power,"

^andtorefrain from

partici­

pating

ⁱⁿ"international ordomestic cartelsorrestrictive

agreements."

^In

fact,

^the

only important exception

^to

thispattern^is

Japan,

^andeven

there,

the

Japanese

^{Fair Trade}Commission hasindicated that it is

making

^efforts

toachieve effective

regulation

^of

restrictive

practices.

^{In sum, aninter­}

nationalconsensusis

building

^about

the basiccontentof

competition law,

such thatit is^no

longer persuasive

^to

argue that US. firmsare

uniquely

burdened

(and benefited) by

^these

laws.

2. Private

enforcement.

^{In this} area, it remains truethatUS. law is different frommostofthe restof the world.

Onecandetect^anascent

private

action in

Europe,

^{but it}bears little if anyresemblancetothe famous treble

damage

^{suits thathave been}

brought

in the United

States, challenging

cartels inindustriessuchas electrical

equipment, plumbing fixtures,

^and

folding

^{cartons. Treble}

damages

^can

be

useful,

^totheextentthat

they

pro­

vide anincentivetodetect anticom­

petitive ^behavior

that would otherwise

secretly

inflict harm onthe_economy.

Often, however,

^one _suspectsthat the suit would be

brought

^somewhere

even if

damages

^{werelimited toactual}

losses, although marginal

^actions

would be

discouraged

because of the reducedamountincontroversy. ^Suits aboutdistributional

restraints,

^for

example,

would appear^{in state}court

as contractactionsif itwere notfor theantitrust

option

^{in federalcourt.}

Thisareaisthereforeone that

requires

^closer

analysis.

^Ina

nutshell,

oneshould firstlookatwhich

private

actionsarestill availablein the federal courts. The

picture

^{shows that}very littleoverenforcementis left inthe system, ^andmuch of what remainsis inthe processof

being squeezed

out,

quite possibly

^tothe

point

^ofexcess.

This has

happened

ⁱⁿpart^{as a result} of the elaboration oftheconcepts ^of antitrust

injury

and antitrust

standing

ofthe last twelve_years. Suits

by

^indi­

rect

purchasers

^{and suits}

by competi­

torshave becomemoredifficult to

bring, depending

^{on the violation}

charged.

^Forvertical arrangements,

developments

in the substantive law have closedoff the antitrust

option

^for

avast numberof terminated distribu­

tors. Weare

coming

^tothe

point

where the treble

damage private

^suit

remains availableto

precisely

^the

people

^who

ought

^{tohave it: custom­}

ers or

suppliers

who suffer from over­

charges,

^and

competitors

^whose

exclusion fromamarket leadsto

anticompetitive

results. To

challenge private

enforcementinthese circum­

stancesisto

challenge

^theantitrust

lawsthemselves. Frontal

assault, however,

^{wouldbe a}grave mistakeⁱⁿ myopimon.

3.

Merger reform.

^Onecan

hardly

^take

seriously charges

that the merger laws

wereoverenforced

during

^the

Reagan

Administration_years. This

point

mustbe understoodas

expressing

^a

concernthat the

loosely

^worded

Section7 ofthe

Clayton

^{Act has}

sometimes been read

sensibly,

^and

sometimesnot. Few

people

^believe

that merger decisions such^asBrown

Shoe,

^von's

Grocery,

^andPabstrepresent desirable

policy.?

^{Fear ofareturn to}

the" bad old

days" might

be inflict­

ing

^a

drag

^onmerger

activity (although

^{I am}

highly skeptical

^even

about that

chance).

^In

1986,

part^of the

Reagan

Administration's antitrust reform

legislative package

^{was abill}

that would have rewritten Section 7to

reflectmore

closely

the merger

policy expressed

^inthe

Justice Department's

1984

Merger

Guidelines. Given the

extraordinarily healthy,

^ifnot

frenetic,

paceoftheM&A

business,

^{it ishard}

2Brown Shoe Co. v. United

States,

370 US. 294

(1962);

United Statesv.

Von's

Grocery Co.,

^{384 U.S.} 270

(1966);

United Statesv. Pabst Brew­

ing Co.,

384 US. 546

(1966).

tomake thecasethateventhis kind of

change

^isa

good

^idea.

4. Intellectual

property licensing.

^Here

again,

^{therewas atimein the}_past

when the criticisms noted abovewere

welltaken: the infamouseraofthe Nine No-No's.

Today

^{we are}

living

ⁱⁿ

adifferent world. Reformersof this field should therefore exercise some

caution. Innovativenessis

critically important

^toourfuture

competitive ability,

^{but thecasehas}yet^tobe made that

bigger

is better for this purpose. With

particular

^referenceto

the

proposed Joint

^Production

Act,

which would either extend theprotec­

tions of the National

Cooperative

ResearchActto

production joint

venturesorcreatea

special

^antitrust

•

Nothing ^{could be}

^more

self-defeating ^than

^to

^seize

^on

one

possibility, whether it is antitrust law, foreign subsidies,

or

foreign ^market access, and to attribute

most or

all of ^the

blame

to

that factor.

•

exemption

^for

production

^ventures

(or both, depending

^{on theversion of}

the

bill),

^the

empirical

^{data doesnot}

conclusively

^{show that}

industry-wide joint

^venturesinnovate betteror

faster than smaller

firms,

^orthat

monopolists

^{tendtoinvestmore in}

innovative activities thandofirmsin

competitive

industries. Inindustries suchas computer

software, develop­

mentsbuild

rapidly

upon ^one

another, suggesting

^thata

policy permitting

^extensive

exclusionary

licenses

might actually

^retardthe pace of innovation.

The link between

production

^and

researchand

development

^isaclose

one, whichsuggeststhat R&D

joint

venturesthat wish to

expand

^tocom­

mercialization

projects

^{will oftenbe}

freeeven nowtodoso. The

danger

of

creating

market-sharebased "safe harbors" for

production

ventures, ^as

somehave

proposed,

^liesinthe

prob-

lematic

relationship

between markets for innovation and markets forcom­

mercialization. The"safe harbor"

may

give

insufficient

weight

^tothe

risk ofundue market_powerindown­

stream

markets,

^where consumers are most

directly

^{affected. In}

short,

^while the

political bandwagon

maymake

some

change

in the antitrusttreat­

ment of

cooperative production

^ven­

tures

inevitable,

any such "reform"

should becarefultopreserve

competi­

tivemarketsboth for

technology

^and

for its

resulting products.

5.

Foreign competition

ⁱⁿ

general.

^IfUS.

courtsandantitrust enforcersare

actually ignoring foreign participants

in US. marketswhen

they

^conduct

theirantitrust

analyses,

^{thiswould be}

a

scathing

indictment of their_per­

formance. I doubt

strongly, however,

thatthisistrue. It wouldbe unthink­

able,

^for

example,

^{toevaluatecom­}

petition

^{in the} automobile market without

taking

^{into account}

Toyota, Nissan, Honda,

^and

Hyundai,

^or

Mercedes, BMW,

^and

Volvo,

^andno

onewould try^to.

Evaluating potential competition

^from

foreigners

^{is some­}

times

hard, especially

^if

capacity

^that

couldbe diverted^tothe US. market is an

important factor,

^butevenhere

approximations

^are

possible.

Thedifficult issue for marketanal­

ysis

^{is the}

reliability

^of

foreign

^compe­

tition, given

^the

prevalence

^oftrade

lawrestrictions. This becomes

impor­

tantany timethe

ongoing

^andfuture

strength

^ofa

foreign

^firmis

relevant,

which istosay, almost

always.

^For­

eign competition

for this purposewill fallintooneof four

categories: (1) totally unregulated,

either because of thenatureof the

product

^or

service,

orbecause ofthecountry^of

origin;

(2) subject

^to

tariffs; (3) subject

^to

quotas^orother

quantitative

^restric­

tions

imposed by

^{the United}

States;

or

(4) subject

^to

quantitative

^restric­

tions ^orother trademanagement devices

"voluntarily" imposed by

^the

sourcecountry.

Competition

^from

foreign produc­

erswhose

products

fall in the firsttwo

categories

^is

basically reliable,

^{in the}

sense that itcan

respond

^tomarket

trends

just

^as

freely

^as

competition

fromUS. firms. The samecannot be said for the lattertwo

categories.

•

Given the choice between the

vigor oj competitive ^markets

and the complacence of monopoly) ^my

^vote

^is squarely

with competition ^and strong antitrust enforcement.

•

Firm quotas, ^whether

imposed by

^the

United Statesorthe

foreign

govern­

ment, do ^notallowthe

foreign

^{firm to}

respond

^if

prices

^riseor

supplies

^fall

short inthe American market.

Quan­

titativerestrictions themselves_vary

importantly:

^{some are forafixed}

duration,

^someare

indefinite;

^some

are

absolute,

^some

depend

^on

quanti­

ties

imported.

^Asthe

Department

^of

Justice's

¹⁹⁸⁴

Merger

^{Guidelines and}

1988 International Guidelines_recog­

nize,

^{itwould be amistake}

totally

^to

disregard competition

^fromthese

restricted

foreign

sources, but ^some kindof discount factor

must

be devised^toavoid

overstating

^their

significance.

In my

view,

^the

weight

^accordedto

restricted

foreign competition

^should

vary

depending

^onthree

general

considerations:

1. How_many

foreign

^sources

exist,

both intermsof firms and interms of countries of

origin?

^{If thereare}many

firms, spread through

many^coun­

tries,

the likelihood isstrong^that

someform of

foreign competition

will be able^toexertitsinfluence

effectively

^{in the}US. market. If

only

^{afew firms}

exist,

^and

they

^are

in countries

participating

^intrade managementmeasures, thecom­

petitive

^influence

they

^exertwill

be

correspondingly

^weaker.

2. How difficult would

re-develop­

mentofUS. sourcesbeif all

foreign

trade

disappeared,

^{either for}

political

or

military

^reasons,

assuming

^that

taken alonetheUS. marketis

highly

concentrated?

If, taking

^{into account}

thetype^of

product,

^the

elasticity

^of

demandforthe

product, capital requirements

^fornewentry, ^technical

requirements,

^anddistributional

needs,

^it appears^that

re-development

would^occur

relatively quickly (i.e.

within

eighteen months),

^{then the}

foreign competition

^{isnotcriticalto}

preservation

^{of theUS. market. Ifthe}

opposite

^{istrue, a}

higher priority

shouldbe

placed

^on

maintaining competitive

^conditions

internally.

3. How

quickly

^is

technology changing

this field? Ifthe market isa

rapidly developing

one, then thefact that

existing foreign

^firmsoperate undertrade restrictionsis

relatively unimportant.

^New entry

by

^other

firmsor

expansion

^of

existing

^firms

may^occur

despite

^effortsat

managing

the trade.

If,

^ontheother

hand,

^the market is

relatively

well established and

unlikely

^to

experience technologi­

cal

improvements,

^thestandard

skep­

ticismabout restricted

foreign competition

^{is welltaken.}

The critical

question

^is

whether,

^for noneconomicreasons, the U. S. ^mar­

ket shouldbe assessed inisolationfor antitrust_purposes, orwhether the full

extentof international

competition

canmake itself

felt, making global

market

analysis appropriate.

^Factors

suchasthose

suggested

^{above will}

help provide

^{theanswertothat}

question.

Two

points

^remainthat deserveat

leastabrief mention. The first arises

outofan

ambiguity

in the criticisms ofantitrust. Those who fear the male­

volentinfluenceof antitrust law on

U.S. international

competitiveness

maybe

talking

^abouttwo

utterly

different

things:

the idea that_monop­

oly

^isnot

really bad,

^orthe idea that marketsareoften

global

^andthat antitrustshould treatthemas such.

The second deals with thecontent of antitrustlaw itself.

Taking

^{the first}

point

^{first: Some of}

the arguments^about

competitiveness

and innovationseemto

imply

^that

monopoly

^{size and}

monopoly profits

arenottheevilweonce

thought they were,

^whether

enjoyed by

^a

single

firmor

by

^agroup of firms coordi­

nating

their actions. Ma

Bell,

^one

might

argue, innovated

constantly

before the

break-up;

^IBM'sR&Dwas

secondtonone. AsI noted

above,

^the

empirical

evidence is far fromcon­

clusiveonthe actual

relationship

between size and

innovation,

^and

much ofitseemsto

point

ⁱⁿthe oppo­

site direction.

Personally, given

^the

choice between the

vigor

^of

competi­

tive marketsandthe

complacence

^of

monopoly,

my ^voteis

squarely

^with

competition

^and strong^antitrust enforcement. Correct

understanding

of

global

^{markets isan}

entirely

^differ-

would it

perhaps

^{make sense to}

codify

someofthe

developments

^{ofthe last}

ten orfifteen_{years. In}

fact,

^{we are}

seeing

isolated efforts atcodification

(or rejection

^ofcourt

decisions),

^all

ofwhichare

healthy exercises,

ⁱⁿmy

opinion. Legislative proposals give

allofus achanceto airourviewson

what antitrust

ought

^{tobe for the}

future,

ⁱⁿ

light

^{ofall the}

complexities

we areable to

perceive.

^{We should}

takecare,

however,

^{thatwedo not} abandonthe

flexibility

that the anti­

trustlaws have

enjoyed

^for

nearly

acentury. ^{Itis that}

flexibility

^that

allowsusto continuetoprotect ^com­

petition,

^tothe benefit of American consumers, ^{even as} the arenaofcom­

petition

has moved fromthe

local,

^to the

national,

^tothe international. •

entkind of criticism. There isno

doubt that this shouldbepart^of every antitrust

lawyer's vocabulary,

from the

day

^{he orsheisfirstintro­}

ducedtomarket

analysis through

^the

case now

sitting

^{onthe desk.} To urge accuratemarket

definition, however,

is

just

^tomakean

"apple pie"

^state­

mentthatthelatest

learning

^should

bedisseminated. It doesnotmean

that antitrust needsafundamental

�verhaul.

On the second

point,

^muchof my discussion of the

myth

^and

reality

^of

antitrustunderscoredthe

changes

that have taken

place

in antitrust

analysis.

It is worth

emphasizing again

^{thatweshould not}

change today's

antitrust law

just

^because

somedecisionswereissued in the 1960s thatwenow believetobe wrong.

Indeed,

^ifantitrust needs

anything today,

^{it isalittlere­}

invigoration,

^as the Millstein Task Force ^ontheAntitrust

Division,

^on whichI

served, recently

^concluded.

We

surely

^{willnotsolveourinterna­}

tional

competitiveness problems by changing

^{laws thatare} "not broke"

atthemoment.

Only

^{ifone were a}firm subscriber

tothe

pendulum theory

of antitrust

doctrine,

^which

incidentally

^{I am}not,

This articlewas

originally

^a

commentary given

^atasession

of

^{the annual}

meeting of

the American BarAssociationin

Honolulu) Hawaii)

^on

August 7) 1989) sponsored by

the Antitrust andInternationalLaw and Practice Sections. Thecommentwas

published

in volume 58

of

the Antitrust Law

Journal.

This edited version is

repro­

duced here with the

permission of

^theAmeri­

canBarAssociation.

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