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Turning on Itself

How Dueling Agencies in the Bush Administration Made Mincemeat of Antitrust Regulation Policy

In 2006, America’s largest home appliance manufacturer, Whirlpool, bought its second-largest competitor, Maytag. The takeover meant that more than 70 percent of all washers and dryers sold in the U.S. will be Whirlpool’s. It gave Whirlpool a dominant position and lessened competition, threatening to raise home appliance prices and stall innovation. But the Bush administration’s antitrust chief in the Justice Department, Assistant Attorney General Thomas Barnett, declined to challenge the Whirlpool merger. He argued primarily that, with the recent entry of two small importers, LG and Samsung, the market would remain competitive enough.

This hands-off stance was conspicuous and troubling--and completely in line with the Department of Justice’s behavior under Bush. If the merger had happened under Clinton’s Justice Department, antitrust enforcers would surely have challenged it. But Justice’s non-intervention in the Whirlpool case was part of a larger pattern. During the Bush years, the Justice Department settled the massive Microsoft monopolization case permissively, reduced merger enforcement, declined to police dominant firms, and repeatedly called on the Supreme Court to decide antitrust cases in favor of defendants. This anti-enforcement stance has no recent precedent, except perhaps at the same agency during Reagan’s second term. In fact, the other U.S. antitrust agency, the Federal Trade Commission (FTC), has been noticeably at odds with Justice--even though both are run by Bush appointees. This interagency clash pits mainstream conservative defenders of traditional competition against radical non-interventionist advocates of broad marketplace rights for big business--and it proves that in competition policy, as elsewhere, the Bush administration has gone sadly astray.

America’s antitrust policy, which originated in 1890, protects competition by blocking mergers likely to lead to higher prices, preventing firms from knocking rivals out of the market to raise prices, and attacking price-fixing and other unethical backroom deals between companies. Over the last 60 years, the antitrust laws have been applied, for the most part, in a consistent and bipartisan way, with Democrats slightly more likely than Republicans to challenge cases where there is a serious argument on both sides.

The non-interventionists heading Bush’s Justice Department do, of course, recognize that problems with competition may arise when firms are left to their own devices. But they think government intervention usually makes things worse. In terms of policy, they defend antitrust enforcement when it attacks cartels and mergers that create near-monopolies, but not when it challenges supposedly lesser offenses, as when monopolists prevent competition by denying their rivals access, without a good reason, to key inputs, distribution channels, or intellectual property they had previously shared.

The rift between FTC’s traditionalists and Justice’s non-interventionists is not just some arcane interagency spat. Competition gives firms the incentive to keep prices low and introduce new products. Absent antitrust, moreover, our uneasy political choice would be between laissez-faire and direct regulation. Take the 2001 settlement of the Microsoft monopolization case, an early warning that the Bush Justice Department might treat potential monopolists with more friendliness than past departments would have. The case had originally been brought by the Justice Department in 1998, under then-antitrust head Joel Klein. According to the Justice Department at the time, the automatic pairing of Internet Explorer with Microsoft Windows, along with deals Microsoft made with personal computer manufacturers and Internet service providers to discourage owners of Windows-equipped computers from using Netscape Navigator, squelched competition. The case bounced around between different courts until the fall of 2001, when Bush’s new Justice Department under antitrust chief Charles James negotiated a settlement that fell far, far short of solving the competitive problem--giving a major victory to Microsoft and to any companies seeking to push the bounds of antitrust policy.

Microsoft isn’t the only black mark against Justice’s antitrust wing under this president. Merger enforcement has become much more lenient compared with a decade ago; Justice has brought at most one monopolization case during the current administration, compared to at least seven during the Clinton administration. Justice has even sought to make bringing such cases harder, by calling on the Supreme Court to adopt legal rules that privilege dominant firms in monopoly cases. And it has consistently taken the defendants’ side at the Supreme Court; even the Reagan administration sided with defendants and plaintiffs about equally.

If Bush’s Justice Department is the most hands-off since Reagan’s (and it may be worse), Bush’s Federal Trade Commission makes for a startling contrast. Perhaps because its five staggered-term commissioners must vary in party affiliation, making it inherently less ideological, the FTC’s antitrust wing over the last eight years has actually worked the way it’s supposed to. The first chairman, Timothy Muris, a Bush appointee, came in wanting to eliminate ways that companies could use the government to inhibit competition. He called on Congress and the courts to reform the patent system, which has stifled competition by awarding patents too easily. Muris’s FTC also sought to narrow the ability of states to exempt themselves from antitrust laws, to limit the ability of groups of rivals to lobby the government for antitrust exemptions, and to target “cheap exclusion” that harmed rivals with no benefit to consumers. While the Bush Justice Department avoided merger challenges and monopolization cases, the FTC has brought them at about the usual rate.

Even through personnel changes (Muris and James have both now left their agencies), the ideological split between the two agencies persisted, becoming so marked that conflict has arisen on more than one occasion. In 2005, the FTC’s long-term commitment to prosecuting branded pharmaceutical companies that sue their generic rivals for patent infringement met an obstacle. A key decision was overturned by an appeals court that preferred encouraging patent suit settlements to protecting competition. When the FTC tried to advance the case to the Supreme Court, the Justice Department opposed Supreme Court review, and the court--which frequently takes Justice’s advice--declined to take the case. This sort of interagency squabbling drew a pointed comment from an FTC commissioner, William Kovacic (now the agency’s chairman): “We have an archipelago of policy-makers, with very inadequate ferry service between the islands,” he said. “In too many instances, when you go to visit those islands, the inhabitants come out with sticks and torches and try to chase you away.” This month, the two agencies went at it again. They studied together the legal rules attacking monopolies but failed to agree on how to enforce those rules, so Justice issued a report on its own. The FTC commissioners (excepting Kovacic, who stayed neutral) immediately fired back, declaring that Justice wanted to “place a thumb on the scales in favor of firms with monopoly or near-monopoly power” and announcing their readiness to fill any “enforcement void” that might be created if Justice implemented its new policy.

There’s no doubt that the non-interventionists at Justice are thoughtful and principled, but in cutting back on antitrust enforcement, they have taken antitrust policy in a dangerous direction. Even the FTC’s counterweight won’t undo the damage because the FTC specializes in different industries. It will take time, of course, to see how the non-interventionist antitrust stance at Justice affects people’s everyday lives--if the small Korean appliance importers can challenge Whirlpool’s dominance, for example. But, with luck, the damage will be minimal, and we can rid the Justice Department of the deregulatory radicalism that allows monopolies to spin out of control if a new administration rolls into town in January.

Jonathan B. Baker is professor of law at American University. During the Clinton administration, he served as director of the FTC’s Bureau of Economics.

By Jonathan B. Baker