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Antitrust enforcement is here to stay.
Joel Klein, trustbuster extraordinaire and, until September, head of the Department of Justice's fight against Microsoft, never imagined that antitrust would turn into a "hot field."
Speaking with HBS faculty recently in a Competition and Strategy Unit seminar, Klein discussed the business implications of what he called a renaissance of antitrust. As for teaching the principles of antitrust awareness to MBA students, he said, "You can't do it in half an hour.
"What you want to make sure is that each race is run on its own terms," Klein advised. "The winner of the last race cannot control the outcome of the next. If Carl Lewis wins each race in the 100-yard dash, that's fine. But nobody thinks he should get a 10-yard head start. And what I mean by 10-yard head start is to be able to use predatory or exclusionary practices."
A big stick
Klein began by commenting on a couple of developments in the political and economic landscape that occurred during his tenure as Assistant Attorney General at the Department of Justice (DOJ). (He began at the antitrust division as Principal Deputy in 1995, and was Deputy Counsel to President Clinton from 1993-95.) The enormous political power that the DOJ wields in antitrust enforcement, going up against companies from Microsoft to Christie's and Sotheby's and many others, he said, owes a debt to strong bipartisan support.
"We got very little political pushback," he commented. "And indeed, probably one of Microsoft's most significant errors was to try to play a political game with our budget. Not only did it not work, but it cost them dearly."
Regardless of U.S. policy, Klein said, Europeans are likely to take a very strong role in the future of antitrust enforcement, particularly on mergers. If anything, he pointed out, some people worry about whether Europeans will carry an even bigger stick than Americans do. The Mannesmann-Vodaphone and Vivendi-Seagram alliances, he said, reflect "fundamental reorganization in the way people are thinking in Europe, because of their concerns about American dominance over technology, over the Internet, over computing, over telephony and so forth."
Relationships between and among three late-twentieth century phenomena—globalization, deregulation, and technology—have made antitrust enforcement important, he stated.
"What we are seeing now is fundamentally a market paradigm shift ... We really are seeing a kind of atavistic competition as being almost an inevitable force," observed Klein, "a kind of interestingly Adam Smith-type view."
Where antitrust steps in
The question he and colleagues faced at the DOJ was whether to allow a "'Let the Good Times Roll' view of this thing" prevail, or whether there was a need for antitrust enforcement. Enforcement should be market-based, spurred by concern about how companies acquire market power and use market power to perpetuate themselves.
"If you take it at the far extreme, and simply say, 'The government goes home,' the outcomes are easy to see," Klein said.
"Why wouldn't we have mergers-to-monopoly left, right, and center? And why wouldn't we have predatory, exclusionary behavior? ... Today, for example, there's actually quite remarkable competition between two civilian aircraft manufacturers, Airbus and Boeing.
"Why on God's green earth, if we went away, wouldn't they merge?"
Three particular areas should expect "continuing and important" antitrust enforcement. Global cartels, for one, would be wise to watch out, he said. He also countered the view of policy makers who believe there is no need for merger enforcement policy. Companies are simply going to push the line, he said, admitting that, "the merger of Bell Atlantic and Nynex actually almost cost me my job, because I didn't challenge it."
The third and most controversial area, of course, is single-firm behavior. His stance, he said, is that "there can be whatever monopoly there is, as long as the monopolist doesn't engage in predatory behavior, which essentially means irrational pricing in the absence of recoupment strategies, or exclusionary behavior, meaning buying a lockout distribution of supply channels for your competitors."
Hot but not popular
The browser battle is probably over, Klein noted. However, new questions are likely to arise in other spheres: voice recognition and interconnections, for example. Rules in the abstract, he said, will be challenged from new directions.
What concerns him now, he told the HBS group, are issues surrounding time-to-market and what he called "the litigation business."
In the Microsoft case, for example, "This judge killed himself and gave us a very, very fast trial. And moved the remedy phase very, very quickly." With the appeals, said Klein, it's hard to imagine that case coming to a close in fewer than four or five years.
Another challenge is how to coordinate all the multiple agencies that get involved as antitrust enforcement proliferates.
"Nobody's going to yield their sovereignty to an international antitrust enforcement body," Klein pointed out. "We're not going to turn this over to the WTO or anything else. The Europeans aren't going to do it, either.
"On the other hand, you can have a real problem if four or five major countries review the same merger, taking consistent actions, different timetables, coming at a time when obviously the time to get the deal done is so critical to businesses. If we do something in four months, the Europeans in six, the Japanese eight, that's a real problem, much less if we say [to a company], 'You've got to divest X,' and someone else says 'Y.'"
It's very rare in the world, Klein added, to have an antitrust enforcement system, as it exists in the United States, that's not in danger of political control in the classic sense. It's very important to figure out a way to preserve that independence.
Still, Klein acknowledged, while antitrust may currently be "hot," it is not going to win any popularity contests.
Not a lot of people vote on, care about, or demonstrate for antitrust enforcement, he admitted—adding that he once tried to persuade a business group to join him in his enthusiasm for a strong antitrust role.
"After a 20-minute pitch," Klein told the HBS faculty, "a businessperson raised his hand, and said, 'Well, as soon as we finish lobbying for higher taxes, Mr. Klein, we'll support more antitrust enforcement.'"