Greenspan Criticizes Antitrust Regulators

(June 17, 1998)  Fed Chairman Alan Greenspan testified before a Senate hearing on mergers that there "ought to be a higher degree of humility" in antitrust regulators.   Greenspan did not mention by name either Joel Klein of the Department of Justice or Robert Pitofsky of the Federal Trade Commission.  The two industrial planners testified after Greenspan.  See, HTML Copy of Greenspan's Prepared Statement.

The hearing was held by the Senate Judiciary Committee Tuesday morning, and focused on the recent wave of mega-mergers in the banking, telecommunications, and other industries.  However, Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve Board, also went into some detail on antitrust law, economics, and enforcement.

The Chairman of the Committee, Sen. Orrin Hatch (R-UT), is the Senate's most vocal critic of Microsoft.  Assistant Attorney General Joel Klein testified later in the hearing.  He is the chief prosecutor of software producer Microsoft at the Antitrust Division of the Department of Justice.

Federal Trade Commission Chairman Robert Pitofsky also testified.  The FTC recently initiated an administration antitrust action against chip maker Intel.  Together, Klein and Pitofsky are greatly expanding the antitrust regulatory activity of the federal government.

Greenspan testified that "I would feel very uncomfortable if we inhibited various different types of mergers or acquisitions on the basis of some presumed projection as to how markets would evolve." He added, "history is strewn with people making projections that have turned out to be grossly inaccurate."

"I would like to see far more firm roots to our judgments as to whether particular market positions do, in fact, undercut competition or are only presumed on the basis of some generalized judgment of how economic forces are going to evolve," said Greenspan.

"To demonstrate that a particular antitrust remedy will improve the functioning of a market is also often fraught with difficulties. For implicit in any remedy is a forecast of how markets, products, and companies will develop", said Greenspan in his prepared statement.

"Forecasting how technology, in particular, will evolve has been especially daunting. The problem is that the various synergies of existing technologies that account for much of our innovation have been exceptionally difficult to discern in advance."   Greenspan cited the example of Bell Labs' initial refusal to patent laser technology later used in fiber optics, because it saw no application.

Greenspan continued:

"Moreover, almost by definition, antitrust remedies are applied mainly to firms dominant in their industries. Yet the evidence of sustained dominance where markets are generally open are few. There has been a tendency for one firm to dominate in the early development of many of our industries where economies of scale enabled significant reductions in unit costs and hence prices. U.S. Steel, General Motors, and IBM are only the more prominent cases of market share erosion after early virtual dominance of their industries was achieved. One wonders how long the Standard Oil Trust's near monopoly of refining would have prevailed, even without the landmark antitrust breakup in 1911, as upstart competitors Royal Dutch Shell, British Petroleum, Gulf, and the Texas Company (Texaco) undercut Standard."

"I am not saying that dominant positions in industries cannot be maintained for extended periods, but I suspect in free competitive markets that it is possible only if dominance is maintained through cost efficiencies and low prices that competitors have difficulty matching. By the measure of what benefits consumers, such enterprises should not be discouraged."

"If competitors are excluded because of a company's excellence in addressing consumer needs, should such activity be constrained by law? Such a standard, if generally applied to business initiatives, would have chilled the type of competitive aggressiveness that brings efficiencies and innovation to the marketplace. Fortunately, that principle was subsequently abandoned by the Supreme Court. More importantly, antitrust actions of recent years have sought to enhance efficiencies and innovations. I leave it to others to judge their degree of success. But the regulatory climate in antitrust, indeed throughout government, has moved in a more market-oriented direction. I believe that is good for consumers and the nation."

For more opening statement of witnesses and Senators, see the Senate Judiciary Committee website documents from this hearing.