Marketplace Has Changed - Antitrust Laws Should Too
The officials that administer antitrust laws are increasingly finding themselves on the defensive in the global marketplace. The reach of government agencies is being undercut by three key factors: the internationalization of production; the increased cross-border flows of information, money, and technology; and the resultant rise of the transnational enterprise.
The mobility of enterprises - of their people, capital, and information - is reducing, but hardly eliminating, the power of the public sector.
Political scientists and economists have long understood that people vote with their feet. They leave localities, regions, and nations with limited opportunity in favor of those that offer a more attractive future. In this era of computers, cellular telephones, and fax machines, enterprises are far more mobile than that. Information - that key resource - can be transferred in a matter of seconds.
Besides business and government, there is another force involved that ultimately is likely to carry the day in these international business matters - the citizen as a customer. Consumers vote every day of the week in dollars, yen, marks, pounds, francs, and lira as they purchase products made anywhere in the world.
It is necessary to update antitrust laws and enforcement to conform more closely to the realities of the global marketplace. Antitrust authorities have been grappling with the challenge of reshaping a government policy that was developed when the largest markets were primarily national or smaller. Indeed, as the pressures of world competition grow, the increasing pressure for greater efficiency in a firm's operations takes on new weight as a reason for mergers and other actions that are likely to result in demonstrated savings in cost. The critical antitrust task of defining the relevant market includes locating the appropriate geographic boundaries in which the competitive battle occurs. Increasingly, this requires changing the traditional viewpoint as to the limit of the market.
In the case of key industries such as aircraft, cars, steel, and chemicals, taking a more global view means that what may seem to be a rather concentrated industry in one nation is really part of an unconcentrated and much larger group of worldwide competitors. For example, General Motors, Ford, and Chrysler traditionally have dominated the US auto market. At times, the big two (GM and Ford) felt constrained in raising their market shares for fear of running afoul of the antitrust authorities.
The situation has changed drastically in recent years, however. The three US firms now compete against a variety of Asian and European producers. The list of major global automobile manufacturers - and the markets that each competes in - is extremely diversified in terms of international geography. US manufacturers account for only about one-third of global motor vehicle sales. They keenly feel the foreign competition, both at home and abroad, from over a dozen foreign-based competitors.
Similar relationships hold in steel, chemicals, electrical equipment, mechanical products, and other large, important markets. For example, nine of the world's 10 largest banking corporations are headquartered overseas, as are nine of the 10 largest electric and gas utilities, eight of the 10 largest electrical and electronics companies, eight of the 10 biggest insurance enterprises, and seven of the 10 largest chemical firms. (All 10 of the largest construction and real estate companies are domiciled outside the US.)
Foreign competition can no longer be factored into the antitrust equation simply by counting imports as the totality of foreign firms' share of the domestic market. In many relatively concentrated industries, local firms are competing directly with larger foreign enterprises. Increasingly the relevant market is virtually the entire global economy. It's time the antitrust policy be updated to correspond to that economic reality.
* Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis.