An interview with Robert Lande: Italics signify the interviewer's questions.

What reasons have been put forth in favor of the growth of large businesses and for mergers and combinations?

Although many reasons have been put forth for this corporate growth, I will limit my discussion to three that are perhaps the most important. A philosophical place to start is with freedom of contract—the belief that businesses should have the freedom to enter into any merger or other agreement they want, even if this leads to their becoming a monopoly or cartel. Second, many point out that businesses often must be large to be efficient, and that mergers and other combinations are ways to achieve large efficiency gains. Finally, in recent years businesses increasingly have made the argument that they have to merge or enter into alliances with other businesses to stay competitive in the global economy.

All of these reasons are, of course, partially true. But there is legitimate debate over how far these reasons should be extended. For example, freedom of contract can be a wonderful idea. But should firms really have the right to enter into contracts to fix prices? Why? Why shouldn't firms' freedom to enter into contracts end when the contract will enable the firms to harm society by charging supra-competitive prices? Similarly, mergers and joint ventures often produce efficiencies. But often corporations merge for other reasons, reasons having little or nothing to do with producing better products or services. Moreover, empirically many mergers and joint ventures do not produce efficiencies. On the contrary, the evidence shows that a large percentage of corporate mergers unwind within a few years because they did not produce efficiencies. Also, it is extraordinarily difficult to predict which mergers actually will lead to significant efficiencies. This makes the acceptance of efficiency arguments in merger cases problematic.

Finally, the needs of U.S. businesses to stay competitive globally often are unrelated to their desires to merge or combine. Only rarely can two rusty, decrepit American companies merge and produce a firm that will be more competitive from a global perspective. Further, allowing mergers or alliances that produce fat, inefficient monopolists in the United States is one of the worst ways to make this nation competitive internationally. The work of Professor Michael Porter and others has shown that the best way for the United States to remain competitive from a global perspective is for the U.S. to maintain vigorous competition at home.1 If an industry in the United States consists of relatively small firms fighting as hard as possible to satisfy American consumers, those firms typically will be efficient enough to compete on a global basis. A vigorous domestic antitrust policy is the best way to ensure that we remain competitive internationally.

How strict have the federal courts been through the years with regard to monopolists, mergers, and/or the excesses of vast economic power?

The strictness of the federal courts with regard to corporate power has varied considerably over time. The 1946-1976 period can best be characterized by relative strictness. While the antitrust laws always have recognized that big business often could be efficient and act in the best interests of consumers and the nation as a whole, antitrust during this period was imbued with an attitude that the activities of monopolists were suspect. While corporate size or market share did not violate the antitrust laws, a monopoly market share certainly was enough to lead the enforcers to believe that the very largest corporations might be doing something illegal. Futher, if you read Supreme Court and lower court decisions from this period, starting with the Alcoa2 decision, you will find an inherent suspicion concerning large concentrations of corporate power. While no Court has ever explicitly held that large concentrations of corporate power were evil, the Court believed that monopoly power certainly gave rise to the potential for abuse. These cases seem to have been predicated upon the presumption, well articulated by Louis Brandeis in "The Curse of Bigness," that the way that companies got to be big was probably by undertaking dirty tricks, as opposed to by legitimate business methods.3
During the 1946-1976 period the "big business is bad, small business is good" philosophy reigned within the antitrust world. However, starting in 1977, there were key Supreme Court decisions—including Sylvania4, Brunswick5, and Broadcast Music6—that dramatically altered the landscape. These opinions didn't overrule or expunge the older social/political "big is bad, small is good" mentality, but they largely ignored it. For the first time they framed the way in which the courts would judge the competitive activities of large corporations totally in economic terms. After these decisions the antitrust world began to use much more of an economic lens than a political or social lens. And under this new economic orientation, activities of big businesses received a much more sympathetic hearing.

The next major event to rock the antitrust world was the 1980 election of President Reagan. Not only did President Reagan appoint many justices and judges with the philosophy that big businesses were not presumptively bad, but on the contrary, in the minds of many or most of these judges, big businesses are presumptively good. Instead of a suspicion that big business probably got to be big through dirty tricks, these people strongly believed that big business became large by being efficient and satisfying consumers' demands better than anyone else. Not surprising, those who believed in closely scrutinizing corporate power or in examining the possibilities that it might have for abuse were not taken very seriously during this period.

During the "big is good" era, from roughly 1981 until 1992, approximately half the federal judiciary was appointed. These judges issued a large number of Supreme Court and lower court decisions that implemented this attitude. With some exceptions, judicial decisions during this period let big business do what it wanted, while giving consumer interests a lower priority.

The pendulum started to swing back, but only somewhat, with the election of President Clinton. President Clinton did appoint some judges and justices who were somewhat more enforcement-oriented than the Reagan and Bush appointees. But no significant number of his appointments fairly can be called liberal when it comes to antitrust issues.

Of course, the election in 2000 of George W. Bush caused judicial appointments again to take a conservative and very conservative direction. Under the current administration, the activities of big business are again glorified, and there is a strong presumption that large companies are operating at almost all times in the public interest. Their few excesses should be considered mere details to be all too often ignored, minimized, or rationalized.