States and Congress act to fill the gaps they see in antitrust enforcement

The days of merger mania may not be over yet, but a political backlash appears to be building over what critics say is lax enforcement of antitrust laws by the Justice Department. Increasingly, Congress and state governments are taking action to restrict the size of mergers and the resulting control of certain markets.

Bills pending in Congress would strengthen merger reporting requirements, closing loopholes allowing companies below a certain size not to report mergers.

Another bill would allow more time for the Federal Trade Commission and the Justice Department's antitrust division to examine proposed mergers. The government currently has as little as 25 days to review some mergers; this would be extended to 75 days. In the case of cash tender offers, the 25-day review period would be extended to 65 days.

State attorneys general have adopted a new, much broader set of guidelines for antitrust enforcement than those used by the Justice Department.

Numerous state legislatures have enacted laws to limit vertical price fixing by restricting franchising in some industies - oil company service stations, automobile and truck dealerships, even restaurant chains.

``As the federal government has relaxed its enforcement of what are known as vertical restraints, the states have increased their enforcement'' of them, says John Flynn, professor of law and antitrust expert at the University of Utah in Salt Lake City.

Scholars and economists say the permissive stance of the Justice Department is due to the Reagan administration's adoption of free-market regulation and antitrust law based on economic models.

The core of US antitrust laws themselves - the Sherman Act and the Clayton Act - was a legislative response to the lack of government intervention in the private sector, scholars say. Even the New Deal, initiated under President Franklin D. Roosevelt, was a kind of federal backlash in the redistribution of economic power.

Further backlashes occurred following a spate of mergers in the 1960s. In 1974, Congress made violation of the Sherman Act a felony rather than a misdemeanor. It also expanded the reach of the Clayton Act, which prior to the mid-70s covered only major mergers in which both businesses were interstate. Congress also amended the antitrust laws to include small business.

``Every time Congress has reacted it has strengthened the laws. There has been no exception to that,'' says James Ponsoldt, associate professor of law at the University of Georgia in Athens. ``Each time it has done that, it has been because either the executive or judicial branches weren't intervening or policing the market.''

In March, attorneys general from 42 states agreed that federal merger guidelines were too permissive and that stricter rules of thumb would have to be used for gauging anticompetitive practice.

``There was a concern that not enough was not being done at the national level,'' says Steve Clark, attorney general of Arkansas and past president of the National Association of Attorneys General.

``There was a feeling the mergers should not be viewed simply with reference to New York, Chicago, and Dallas,'' Mr. Clark says, ``but with proper concern for the impact on places like Little Rock, Pine Bluff, Fayetteville.''

Ironically, the chief critics of the Reagan administration's laissez-faire approach say they, not free-market theorists, are battling to help business survive the backlash of loose antitrust enforcement.

``It's too often assumed that proponents of antitrust don't like business or are anti-capitalists, when the reverse is true,'' says Professor Ponsoldt. ``Many who want vigorous antitrust enforcement think that if private power goes unchecked, then eventually government will have to play a more intrusive role.

``Really they are pro-market,'' Ponsoldt says, ``and they feel, ironically, that the more generous you are about antitrust enforcement, the more likely you are down the road to have state intrusion.''

Indeed, states seem to be lining up to restrict business in response to negative public perceptions to the merger wave and greater market concentrations.

``The general consensus was that we need a uniform standard we can apply,'' Arkansas's Clark says. ``It's a notice to the communities that we are not taking a hands-off approach. We are saying: `Yes, we will review and if we think there's reason for individual or collective action, then we'll act.'''

Some contend the Justice Department has not done its job, since it has objected to just 29 merger applications out of more than 8,000. The statistics, however, have to be seen against the overall change in policy, division spokesmen say.

``The figures make it sound like we never met a merger we didn't like,'' says Mark Sheehan, a spokesman for the antitrust division. ``The vast majority of mergers raise no anti-competitive problems. It may run up your statistics, convince people you're enforcing the old antitrust laws, but it doesn't serve any function other than using up government resources.''

Other antitrust division officials say the state attorneys general have their own political agenda to fulfill. Their association ``came out with merger guidelines that were different, and that we think had serious analytic problems,'' says Roger Anteweldt, deputy administrator of the antitrust division. ``They did so in an effort to appear as though they believed there was a broadened application for antitrust in the merger area.''

But no matter the reasons, laws restricting business activity are going on the books nationwide, and the scene is being set for a Supreme Court showdown for state laws that frequently run counter to current federal antitrust enforcement.

``What we've seen is that if anything goes [in a free market], everything will go,'' Flynn says. ``And the free market will not remain unpoliced for very long.''

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