Before Google could buy DoubleClick and AdMob, the Internet giant needed to get antitrust approval from the Federal Trade Commission.
But when Google wanted to buy ITA, a leading maker of travel software, the review was conducted by a different agency: the antitrust division of the Justice Department. It was also Justice that earlier nixed the idea of a merger with Yahoo.
Now both agencies appear to be quietly, and separately, laying the groundwork for a much broader investigation to determine whether Google is using anti-competitive practices to protect its dominance in the Internet search business. The leaders of both agencies would like nothing more than to bring a high-profile case that would take its place in history along with the government’s landmark challenges of Standard Oil, IBM, AT&T, Microsoft and Intel. The FTC appears to have won the initial coin toss on this round, but don’t count out the team from Justice just yet.
Gee, I thought the idea of the antitrust laws was to encourage competition between businesses, not regulators.
Google is hardly the only turf being fought over by the antitrust cops. Every big merger, it seems, is now the occasion for extended wrangling over who is going to review it. And over the past six months, sharp elbows have been flying in all directions in the fight over which one will oversee the implementation of the new health-care law, which explicitly encourages collaboration among doctors, hospitals and other providers in what are called “accountable care organizations.”
While ACOs hold the promise of reducing costs and improving quality, creating them is likely to reduce competition in certain areas. Both agencies laid claim to the job of formulating the guidelines and approving individual transactions, with FTC officials accusing Justice of wanting to sacrifice the antitrust law to the White House’s political agenda and Justice officials accusing the FTC of trying to undermine health-care reform. Only when the dispute spilled out onto the front page of the Wall Street Journal did the embarrassed regulators sign on to an uneasy truce that divides the work between them.
This rivalry is not new — it’s been going on since 1914, when Justice opposed the law creating the Federal Trade Commission and balked at giving it a concurrent role in antitrust enforcement. But in recent years the flare-ups have become more frequent, more ideological and, at times, more personal. One big reason is that the traditional way that the work has been divided, with each agency specializing in particular industries, has become less useful as changes in technology and supply chains have blurred the boundaries between industries.
William Kovacic, a Republican member of the FTC and a former chairman, says it has gotten to the point that his agency has better relations with competition regulators overseas than it does with fellow American regulators two blocks away.
While old-fashioned bureaucratic rivalry explains much of the bad blood that has developed over the years, there are other reasons behind it.
The FTC is an independent commission run by five appointees with staggered terms and different party affiliations with a tradition of consensus decision making. The agency has broad responsibilities for consumer protections that go well beyond antitrust, although, unlike Justice, it has no power to bring criminal actions.
Justice, by contrast, is part of the executive branch. Although White House staffs have generally been careful not to interfere directly in any particular antitrust case, the direction of the division can change dramatically depending on the party in power, with Republicans showing increasing skepticism of government interference with markets. Christine Varney, head of the antitrust division, made a big splash after taking office by announcing that she was tearing up the more lenient guidelines for the behavior of dominant firms such as Google that were issued just a year earlier by her Bush-era predecessor.
Obviously nobody setting out to design a system would create two agencies with different governance structures and overlapping duties. For U.S. companies and regulators in other countries, it adds an unnecessary level of uncertainty and inconsistency to antitrust laws that, by their nature, are somewhat ambiguous to begin with. The only reason the current arrangement persists is because of bureaucratic inertia and the difficulty of getting congressional committees to forfeit a part of their jealously guarded jurisdictions.
If congressional politics dictates that there must be two agencies, however, surely there must be a better way for them to divide the work.
My suggestion would be to leave all the merger reviews to the FTC. The commission operates under a somewhat broader and more flexible consumer protection mandate, while its bipartisan governance structure would help to assure greater consistency in the standards by which mergers are reviewed. The FTC’s broader and deeper economic expertise is also better suited to the task of continuously monitoring the activities of companies whose mergers are approved with limitations and conditions, which has frequently been the case in recent years.
This arrangement would leave Justice with the primary responsibility for enforcing the Sherman Act and its prohibitions against monopolistic behavior and price fixing. Many such cases involve a mix of civil and criminal actions that Justice, as the sole criminal prosecutor, is better suited to handle. And because of its deep bench of lawyers, Justice is better equipped to bring the big, complex cases against giant corporations and entire industries that take years to work their way through the federal courts. I’d also argue that the decision to bring a case breaking up the Bell System or Microsoft is as much a political decision as it is a legal one. Although the ultimate decisions will be made by the courts, there is a wide discretion involved in prosecuting such cases that more properly belongs with an agency under the nominal direction of democratically elected leaders.
Why does any of this matter? Because, thanks to globalization and new technology, business in many sectors has come to be dominated by fewer and fewer giant companies. This consolidation has helped to lower prices, increase efficiency and, in some cases, spur innovation, but it has also led to a concentration of economic and political power that the antitrust laws were meant to prevent. An updated and rationalized regulatory structure would help to revive those laws after years of timid and reluctant enforcement while making that enforcement more predictable and fair.
Put another way, we’d all be better off if antitrust regulators spent more time and energy protecting consumers and less protecting their own turf.