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- WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said Tuesday
that U.S. regulators should leave most monopolies alone because they could
not survive long in a world of rapidly advancing technology and global
competition.
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- While Greenspan did not mention U.S.
antitrust action against computer giants Microsoft Corp. and Intel Corp.,
his comments seemed to question the whole philosophy underlying U.S. antitrust
policy.
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- The government should not interfere with
monopolies that maintain dominance through cost efficiencies and low prices,
the Fed chief said in testimony to a Senate Judiciary Committee hearing
on the current wave of corporate mergers.
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- "By the measure of what benefits
consumers, such enterprises should not be discouraged," Greenspan
said.
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- He called on antitrust authorities to
exercise a "higher degree of humility" before acting.
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- But Justice Department antitrust chief
Joel Klein lobbed the metaphor back at Greenspan, his sometime tennis doubles
opponent.
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- "I hope when he sets the discount
rate he exercises a great deal of humility," Klein told reporters
after the hearing. "Humility is not a prescription for abdicating
responsibilities."
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- Klein said antitrust enforcement is based
on combing through millions of documents and interviewing dozens or hundreds
of people to seek out specific, illegal behavior.
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- In his testimony, Greenspan said antitrust
remedies were applied mainly to firms dominant in their industries, "yet
the evidence of sustained dominance where markets are generally open are
few."
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- U.S. Steel, General Motors Corp., and
International Business Machines Corp. were prominent examples where market
share had eroded after early dominance was achieved, he said.
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- Greenspan said banking and other regulated
industries were an exception, and monopolies could flourish in these environments
without appropriate care.
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- But he said technology was increasingly
reducing the incidence of "natural monopolies," making it easier
for competitors to enter markets that previously had high entry costs.
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- Finally, Greenspan said the increasing
size of very large companies relative to any one nation's economy illustrated
the importance of free trade.
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- "In some industries, free trade
may be essentially the only way to maintain truly competitive markets to
the benefit of consumers in all of the nations involved," he said.
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- However, antitrust experts noted that,
for example, aluminum giant Alcoa, was a monopoly for 50 years before antitrust
action in the 1940s and Standard Oil held a 90 percent share of the market
for 25 years before its breakup in 1911.
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- Federal Trade Commission Chairman Robert
Pitofsky said Greenspan was advocating letting all mergers proceed and
then wait and see if action was necessary. "I don't agree with that,"
Pitofsky said.
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- "If you challenge the merger before
it happens, it's not very expensive to remedy it," Pitofsky said.
"After the merger, after the assets are scrambled, the employees have
been fired, the management has gone elsewhere, the factories have been
sold for junk in some other country, then putting the company back in business
is enormously expensive."
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- Judiciary Committee Chairman Orrin Hatch
opened the hearing saying "mega-mergers" were rippling through
the economy at what seemed to be fever pitch.
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- Although there had been previous merger
waves -- notably in the 1890s, 1920s, 1960s and 1980s -- the current merger
wave dwarfed its predecessors, the Utah Republican said.
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- While the 1980s had seen worldwide mergers
worth $500 billion, this year the figure could surpass $2 trillion, Hatch
said.
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- Trustbusters at the Department of Justice
and the Federal Trade Commission are in the middle of several battles against
mergers they feel will not serve the public interest.
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- In the defense sector, the Justice Department
has gone to court to challenge Lockheed Martin Corp.'s proposed $9 billion
purchase of Northrop Grumman Corp.. Both companies are the product of previous
mergers, and the government believes consolidation has gone far enough.
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- The FTC has made a similar analysis regarding
further concentration in the wholesale drug industry, where four of the
largest players want to combine into two companies.
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- Regulators in the United States and Europe
are taking a tough line on a huge communications deal, insisting MCI Communications
Corp. sell the bulk of its Internet businesses as a condition of its $37
billion merger with Worldcom Inc.
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- While the banking and financial services
sectors have seen a flurry of mergers announced this year, Greenspan was
relaxed.
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- "To be sure, recent bank mergers
have led to a substantial rise in national concentration measures. Nonetheless,
they have had little or no evident impact on average concentration measured
at the more relevant local market level," he said.
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