Few have done more than Robert Bork and Richard Posner to elucidate the central problem with antitrust policy in the U.S.--namely that, contrary to its objectives, inefficient firms are protected from competition, and as a result, consumers are hurt by higher prices.
Recent events have proven that assessment to be wildly optimistic. I would argue that, overwhelmingly, U.S. antitrust policy which prevents M&A shields foreign firms from strong U.S. competition, hobbles our companies from successfully challenging foreign competitors for market dominance, is a leading cause of our trade deficit, and leads to widespread U.S. unemployment
In effect, our companies compete, but they do not compete to win, since they are not allowed to grow to a size which would allow them to crush foreign competition. Foreign firms are under no illusions. They are conceived, designed, managed, and grown to win in the battle place of global markets and are often regulated by governments which recognize that in any human endeavor, superior human ingenuity, discipline, and execution leads to a winner of that competition.
Our firms are competing to compete. They are not playing to win. Like little league parents who coddle their children, our government, in its effort to promote competition, is ensuring that our firms are wholly unprepared for victory in global markets.
The U.S. government needs to think globally. Even a company which is dominant domestically, might pale in comparison to the size of the global market and the foreign competition. It is naive to think that gnats can compete effectively against giants and win. U.S. firms must be allowed to freely merge in order to compete.
Some recent examples:
The Big Three (at risk of becoming The Three Dwarfs). Ten or twenty years ago, could you have imagined the U.S. government allowing all three to merge in order to better compete with Toyota (TM) and Honda (HMC)? The country would have screamed monopoly, but what do we have now? Three inefficient companies with higher prices than Japan's national champions, massive unemployment, and layoffs. Wasn't antitrust law supposed to protect consumers with lower prices? Instead, it has left us unable to compete with an onslaught of lower-priced competitors, from Japan, Korea (Hyundau/KIA, etc), and soon China.
Google (GOOG) vs. Baidu (BIDU). Google may be dominant in the U.S., but even before it contemplated pulling out of China, Baidu had over two-thirds of search engine market share in China. Search depends upon mobilizing vast amounts of human capital and spreading out those costs over billions of tiny transactions. If we do not allow companies such as Google to grow (by acquisition or otherwise), they will lose dominance to countries that put no such restrictions on their national champions, who will soon be knocking on the door of our domestic markets.
eBay (EBAY) vs. Alibaba's Tabao. Alibaba's Jack Ma has already crushed eBay in his fight for China's internet auction market. Now he has vowed to now take on Amazon and eBay on their home turf. Given his record, why shouldn't we believe him? What's the unconventional conclusion? In a bid to make us competitive, the U.S. government should not put up barriers to companies such as eBay, Amazon (AMZN), Google, or Apple (AAPL) merging or buying up smaller competitors. By allowing these companies to merge, the government would be allowing them to better compete. Losing our manufacturing base has been bad enough. We cannot afford to lose our superiority in hi-tech.
Now for the unpopular ones...
“Big Oil” is “Tiny Oil.” 95% of the world's oil and natural gas reserves are controlled by foreign state-owned oil companies. Like high-tech companies, but more so, energy exploration depends upon mobilizing vast amounts of financial capital and technical expertise to explore and to develop new fields. Moreover, if companies such as Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP) were allowed to merge, they could have much more leverage against erratic foreign governments, such as Hugo Chavez's regime in Venezuela, which seek to unilaterally seize the assets of U.S. Companies. If we do not want to import so much foreign oil, we have to allow American companies and American ingenuity to compete. Currently, the share of all U.S. energy companies combined is not enough to make a dent in global energy supply, which will require the exploration and development of vast super fields far offshore, the development of more efficient means to extract energy from shale and tar sands, or even massive nuclear, hydroelectric, wind, and solar projects.
Steel. Shrewd operators such as ArcelorMittal now dominate the global steel industry. U.S. Steel is an also-ran. No American firm can currently challenge Lakshmi Mittal and his son Aditya Mittal (MT) for dominance of the global steel industry. It is rather like trying to fight Mike Tyson with both hands tied behind one's back. It would take dozens of mega-mergers of U.S. firms in order to even mount a credible challenger. Unfortunately, long before a U.S. competitor would become viable, I expect that the antitrust authorities would put a stop to it.
American ingenuity needs a chance to compete More efficient foreign firms are mauling us in global markets, leading to the widespread failure of U.S. Companies, such as GM's recent near-death experience.
When our companies cannot effectively compete, neither can labor. Unemployment goes sky-high. Rational public policy, which would create an environment essential for U.S. success, has been replaced by irrational policies which result in subsidies for industry.
We pay three times—first, with higher prices for consumers; second, when public policy failure leads to bankruptcies and layoffs; and third, when we put companies on life support which we never allowed to effectively compete.
As Americans, we have never been afraid of foreign competition until we have been prohibited from successfully meeting it by severely misguided government policies. Current antitrust policy protects neither consumers, nor labor, nor companies, nor our trade deficit. The competition experiment hasn't resulted in greater competition. It has resulted in higher prices, layoffs, and the dominance of foreign firms. When will the U.S. government make it legal for American firms to compete again?
Unfortunately, U.S. companies such as GE have learned that the European Union can be even more capricious when it tried to merge with Honeywell in 2000-2001. Perhaps the developed world as a whole needs a new approach to allowing M&A. Emerging countries already recognize that only strong companies can compete. The only alternative to robust M&A is slow, but perpetual decline leading to the loss of our standard of living and the loss of our way of life.
Disclosure: Author holds long positions in BIDU, AAPL and EBAY