Robert Pitofsky is no Teddy Roosevelt, though he'd like to be. Curly-haired and a bit pudgy, the chairman of the Federal Trade Commission has the absent air and serene smile of a scholar. And he knows he'd look pretty silly carrying a big stick, like Teddy the trust-buster in the populist cartoons of nearly a century ago. Nonetheless, Pitofsky says, he has the Roosevelt religion. "I'm a true believer in antitrust," he says. "I believe the best thing for consumers and for shareholders is to require companies to compete aggressively with each other." And for U.S. regulators to bring down the mighty.
Pitofsky's problem is that, since he took over the FTC two years ago, his liberal, big-is-bad instincts have fallen victim to reality. Despite a record 3,000 U.S. mergers last year, he has warily cracked down on only a handful of deals. Perhaps most surprisingly, the FTC is leaning toward approval of the $14 billion merger announced last December between Boeing and McDonnell Douglas, even though the deal would leave America with a single manufacturer of large commercial aircraft. That's a monopoly that would have been unthinkable a generation ago. At the same time, though, the FTC is aggressively prosecuting another big deal: the $4 billion planned merger between Staples and Office Depot, the office-equipment superstores - this despite the fact that the companies say they'll have a mere 5 percent of the market. Why the seeming contradiction? Antitrust enforcers have come to believe that, in this era of hypercompetitive capitalism and technological change, conventional definitions of markets are often obsolete -and how you define the market determines whether or not you see a trust to bust.
For the most part, antitrust experts have come to believe that markets usually correct themselves - upsetting would-be monopolists and creating new efficiencies that drive prices down. As a result, regulators find themselves in the shoes of the Maytag repairman: there isn't much to fix. No one has learned this better than Pitofsky. In 1995 the former Georgetown Law prof, eager to beef up enforcement, began the most extensive rethinking of antitrust rules since William Baxter, Ronald Reagan's antitrust chief, toppled the high barriers to mergers erected in the activist '60s and '70s. But the fresh look that Pitofsky the scholar applied to decades-old case law led Pitofsky the enforcer to largely follow Baxter's laissez-faire lead. It's been much the same at the Justice Department's Antitrust division, which soon will get an equally cautious chief, Joel Klein. "This new crew wants to be more activist," says Baxter, "but for the most part they're finding that the realities of competition in the economy keep getting in their way."
The likely approval of the Boeing- McDonnell Douglas deal is a case in point. Pitofsky won't comment on the investigation, but sources close to the agency say the FTC believes that McDonnell Douglas's civilian-aircraft side, which has just 4 percent of the market, may be moribund. Most important, though, is that the market for aircraft is global, and Boeing faces vicious competition from Europe's Airbus consortium. In a real irony, Boeing chairman Philip Condit - next to Bill Gates, perhaps the closest thing to a monopolist there is today - now apparently views the FTC as his ally in a fight against the European Union's antitrust agency. Last Thursday the EU competition minister, Karel Van Miert, said he'd try to block the merger on the ground that it will give Boeing too much market clout. The EU could fine the companies a punishing 10 percent of their sales. Condit is now pushing for early FTC approval to fight Van Miert's move.
A much narrower definition of the market has led the FTC to the opposite conclusion in the Staples-Office Depot merger. For Pitofsky the Staples case is a rare, straightforward find: the retail market's purely local, it's not very high-tech and the FTC has compiled masses of data showing that prices will jump 5 to 10 percent if the two competitors join up. Yet even here Pitofsky must confront the deflating truth about trust-busting today: he's no hero to Staples customers. The chain has made its rep by slashing prices. "I don't understand it," Staples founder Thomas Stemberg told NEWSWEEK last week as District Judge Thomas Hogan heard the FTC's demand for a preliminary injunction against the deal in Washington. "They're suing one of the very best friends small businesses have ever had in America." Even some of those prosecuting the Staples case are ambivalent. In a comic twist last week, a government witness admitted that he began shopping at Staples after examining its price data.
The FTC argues that Office Depot and Staples, the No. 1 and No. 2 office discount chains, have grown dangerously big. While the combined chains would still have just a tiny share of the overall market for office supplies, the agency says that office superstores are a market in themselves, and Staples/Office Depot would control three quarters of that. That's too static a view of the business, Staples maintains, since outside competitors like Wal-Mart are breathing down its neck. It says big stores can easily enter the office market if Staples boosts prices - a key test for antitrust enforcers.
Pitofsky's response is a sigh. "Markets change so rapidly," he concedes, "that the solution you thought was required when you started the case is no longer true by the time you've settled it." The rise of direct-broadcast satellites, for example, helped ease his concerns about the merger of Time Warner and Turner. The obvious exception to this hands-off approach has been Microsoft. The Justice Department has pestered the software giant incessantly - most recently last week when regulators intensified their probe of Microsoft's proposed purchase of WebTV, a tiny company with just 56,000 subscribers. But here, too, some observers are puzzled, and few think Klein will act. "I think that both Pitofsky and Klein want to be aggressive enforcers, but they know this is a new world," says Carl Shapiro, a former chief economist of the Antitrust Division. "The practical result is that Microsoft has still only gotten a slap on the wrist."
Pitofsky and other true believers argue that antitrust law is like air - you don't see it working, but would miss it dearly if it weren't there. About half of what the FTC does is to crack down on low-profile price-fixing and bid-rigging cases. And to some extent antitrust is self-enforcing. Says Baxter, "Companies just don't try stuff that would clearly create problems." When they do, Robert Pitofsky, like the Maytag repairman, will be waiting to fix things.
Following are the competing arguments in several high-profile antitrust cases under review by the Federal Trade Commission and the Justice Department.
CASE PROS CONS Staples and Would crate more Companies would Office Depot "efficiencies"-- control three lower costs--and quarters of even reduce prices. office-superstore market. Boeing and Would crate a Would leave McDonnell supercompetitive America with a Douglas U.S. rival to single monopoly Europe's Airbus. aircraft maker. Microsoft Will make it easier Will crowd out and WebTV for TV viewers to rivals and inhibit connect with the innovation and Internet. price competition. Banks, Visa These bank associations They control 75% USA and have made it easy of the market and MasterCard to funnel credit block rivals like International to consumers. American Express.