The Curse of Bigness and The Failure of Antitrust

Antitrust law needs to be concerned with consolidated power, and giant companies have a great deal of consolidated power.

Carl T. Bogus

Carl T. Bogus

At the same time, antitrust law must reflect our national values and mores, and those hold that growing by outperforming rivals is not the same thing as growing by buying rivals.

So long as a company grows by building the proverbial better mousetrap, our longstanding national values say that the company should not be broken up based on size alone.

It would, of course, be another matter if a company become a monopoly or attempted to monopolize through predatory practices.

Walmart’s growth within the United States has been entirely internal, and thus despite the significant problems caused by its great size, Walmart should not be broken up.

Regulators and courts should, however, take a far more stringent approach to corporations growing through mergers and acquisitions.

Antitrust law should not, as Robert Bork advocated, be indifferent to whether growth occurs internally or externally.

For many reasons, growth through mergers and acquisitions is less socially desirable than internal growth.

That’s the argument put forth by Carl T. Bogus in a recent law review article — The New Road to Serfdom: The Curse of Bigness and the Failure of Antitrust (49 U. Mich. J. L. Reform 1 (2015)).

Bogus is a Professor of Law at Roger Williams University in Bristol, Rhode Island.

“First and foremost, the nation is better served by having more rather than fewer companies, and every merger and acquisition causes at least one firm to disappear,” Bogus writes. “Even if consumers might benefit from a corporate merger, there are fewer employment options for workers and fewer opportunities for suppliers. Antitrust laws are about competition, but properly conceived antitrust policy should be about all forms of commercial competition – including in labor and up-chain commercial markets – and not merely about competition between rivals for customers. The reduction of opportunities for employees, suppliers, and contractors in the industry diminishes individual freedom in real and meaningful ways. The plight of the poultry growers is one example.”

“Second, the ready availability of mergers and acquisitions suppresses research and development. Steve Jobs is reported to have said that every merger represents a failure of innovation. Rather than investing heavily in research themselves, large companies often find it more efficient to buy up smaller companies that create valuable new products or processes.”

“Conversely, the entrepreneur’s dream increasingly is not to grow and sustain a vibrant, independent business but – having developed something new and valuable – to cash in by selling out to a corporate giant. This may be profitable for the parties directly involved, but it is not good for the nation.”

“Third, mergers and acquisitions often do considerable damage to local communities,” Bogus writes. “The community that loses a business that is headquartered there loses not only jobs but civic leadership and philanthropy. . . .”

“Fourth, there are too many false positives in proposed merger analyses, that is, the predicted net benefits for consumers often are not realized. The real driving force behind many mergers is increased compensation and prestige for top executives. Even when a merger proposal is supported by elaborate analyses, claims of future synergies and efficiencies may be camouflage designed to persuade regulators, courts, and the stock market about the benefits of the merger. . . .”

“It is tempting to be lured by the Siren song of economists that promises objectivity. It is comforting to believe that antitrust has become a scientific (or at least semi-scientific) discipline based on ideologically-neutral economic principles. But this lure has led us into an age of oligopolies, giant corporations, and consolidated power. Take for example the telecommunications industry. We live in a world that depends upon data and content being delivered to us either through cables or without them. The stories of consolidation in both the wired and wireless markets consists of a dizzying array of mergers and acquisitions of all kinds – horizontal, vertical, and conglomerate – some successful and permanent, and some that later resulted in spins offs. The cable market is dominated by a duopoly consisting of Comcast, which owns NBC and Universal Studios, and Time Warner Cable. Comcast and Time Warner want to merge, and are awaiting permission of the FCC. Meanwhile, two of the largest firms in the wireless television market, AT&T and DirecTV are also seeking permission to merge.”

“All four are corporate giants. Someone unfamiliar with the process might be flabbergasted that such competitors would even entertain the possibility that the FCC would allow them to merge; but, in fact, the companies’ expectations of approval are quite reasonable. In her book about mergers and monopoly power in the telecommunications industry, Susan Crawford writes: ‘Just two major media-telecommunications mergers have been rejected by the FCC in the twenty-first century….Both rejections were unusual.’ Crawford notes that the FCC even approved the merger of Sirius and XM, even though the combined firm would monopolize the satellite radio market.”

“Merger mania is not limited to telecommunications. It is rampant everywhere. Facebook recently acquired WhatsApp; Kraft Foods and H.J. Heinz have agreed to merge; Reynolds American is seeking to purchase tobacco rival Lorillard; Halliburton is buying its rival oil Baker Hughes; Actavis, the world’s largest generic drug manufacturer, has reached an agreement to acquire Allergan; Dollar Tree is seeking to buy Family Dollar; Staples wants to purchase Home Depot, which itself acquired OfficeMax in 2013; Coca-Cola recently bought a share of Monster Beverage; and the company that produces Chicken of the Sea tuna is buying Bumble Bee. Antitrust regulators approved airline mergers between Delta and Northwest in 2008, United and Continental in 2010, Southwest and AirTran in 2011, and American and US Airways in 2013. These represent only a fraction of recent and proposed mergers between very large companies.”

“It is of great significance for the nation that the current merger boom is not driven by optimism or an expanding economy but just the opposite – because companies are unable to figure out how to increase revenue and profits internally, and are seeking to compensate by growing through mergers.”

“At bottom, antitrust policy is about values. It is about what kind of society we wish to live in. There is no way around that. Antitrust policy both reflects and affects national values. We, as society, value efficiency and consumer welfare. But those are not our only values. If we have one value that transcends all others, it is freedom. Consolidated power – both governmental and commercial – threatens freedom. Just as constitutional law is a key tool for limiting consolidated governmental power, antitrust law is a key tool for limiting consolidated commercial power. An antitrust policy that forgets that reneges on one of its most critical historical roles.”

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