Business is Down for at least one segment of the economy: antitrust lawyers. In the 1960s they were busy defending businesses against lawsuits brought by the Justice Department or the Federal Trade Commission. Now many are idle, because the government isn't bringing many cases.
The change was under way before the Reagan administration took office. In the 1960s the Supreme Court seemed to ban all mergers between competitors or suppliers, no matter how small; and antitrust experts were even spinning theories to prohibit conglomerate mergers between firms in unrelated businesses. The fear was that otherwise the whole economy would be gobbled up by a few giant corporations. That specter is less frightening today. Giant American firms have been battered by foreign competition and shaken by unanticipated declines in the demands for their products. Conglomerates are shedding divisions rather than adding them on. Competition and markets seem more vigorous than people used to think. Traditional antitrust theory has been undermined by new economic trends and arguments.
So while it once seemed that no one could say with confidence that a merger was legal, now it seems that no one can say with confidence that one isn't. Case in point: the sale announced last month of Seven-Up by Philip Morris to PepsiCo. By the old standards, this merger is suspect. The soft- drink market is concentrated: Seven-Up has 7 percent of U.S. sales; acquiring it would give PepsiCo 35 percent, just behind Coca-Cola's 39 percent. Nor is foreign competition a factor: Coke and Pepsi are the giants on the world market. Barriers to entry are high. Philip Morris' sale of Seven-Up removes a vigorous competitor from the field.
There are, to be sure, arguments on the other side. Seven-Up has had a declining market share, and like other lemon-lime drinks has competition from soft drinks that contain genuine fruit juice. And Philip Morris, despite its marketing skills, wanted out of soft drinks; at least it sold Seven-Up to a company able to compete.
In more general form, these are arguments against challenging almost any merger. Products compete for consumers' dollars with all other products; Seven-Up competes not just with other lemon-lime drinks but with colas (against whom much of its advertising is directed) and fruit juices and milk. And in order to have an efficient economy, owners of capital assets have to be able to sell them to those who can make better use of them; if PepsiCo wants to buy and Philip Morris wants to sell, let them.
Those general propositions make sense. But there are limits, and the Seven-Up case looks like one test of them. The FTC is looking at this transaction. It will be illuminating to see what it decides, and why.