What's Really Going On Inside The Beltway?

The Insight Information Conference, "Managing Antitrust Law Counseling and Compliance in a Changing Legal Environment", Park Lane Hotel

New York, N.Y.

Date:
By: 
Willard K. Tom, Former General Counsel

First, let me just thank you for inviting me to speak to you today. My tongue-in-cheek speech title, "What's really going on inside the beltway?" comes at a time when I suspect that most Americans would just as soon not know what's going on inside the beltway. In the antitrust field, however, I think it's awfully important for us to communicate with the public, so that legal counselors, the business community, and consumers can understand what we are doing and why we are doing it. Having boldly declared that purpose, however, I must note the usual caveat that the views I will express are my own, and do not necessarily represent those of the Commission or any Commissioner.

The program notes seek to raise your adrenaline level by warning of "activist" enforcement agencies, and "aggressive investigative and litigation initiatives by the Department of Justice Antitrust Division and the Federal Trade Commission." I'd like to file a sort-of qualified demurrer.

Certainly we at the Commission don't exactly feel injured by the perception that we are "activist" and "aggressive." We know we can't be everywhere, and the perception that we might suddenly come thundering down out of the sun to strafe the antitrust violator can lend a kind of multiplier effect to our actual enforcement resources. But there is such a thing as over-deterrence, too--deterrence of activity that may on balance be pro-competitive--so I think it's important that we try to clarify for the business bar just what we actually are up to.

Let me talk first about our merger cases: Is there really a new aggressiveness on our part? Maybe the best way to answer that question is simply to look at the numbers, comparing enforcement actions taken to the number of transactions on which we received premerger filings during a given fiscal year. For these purposes, enforcement actions include preliminary injunction actions authorized, consent agreements accepted for comment, administrative complaints issued to be litigated, and deals on which premerger filings are withdrawn before our investigation is completed. The last category, filings withdrawn, usually but not always represents a situation in which the parties have come to realize that we have significant antitrust problems with the transaction in question. These categories may not be entirely watertight, though we try to eliminate double-counting by counting only the first enforcement action on a particular case. But for the point I want to make, what is important is the trend-line over time, not the absolute numbers. So I've totaled these categories of enforcement action by fiscal year and compared them to the number of transactions on which premerger filings were made in the same year.

Fiscal Year Transactions filed Enforcement actions Ratio (E/T)
1993 1846 21 .0114
1994 2305 28 .0124
1995 2816 43 .0153
1996 3087 27 .0087
1997 3702 27 .0073
1998 4643 33 .0071

As you will see from the table in my text, the ratio of enforcement actions to transactions increased somewhat from 1993 through 1995, and has decreased each year from 1995 to the present. We're not talking about changes by orders of magnitude--the range has been from enforcement actions taken in a little over one percent of transactions to a little under one percent--but this is hardly a portrait of a trend toward raging activism. There are just a tremendous number of mergers these days--even with the stock market's recent difficulties-- and that has brought the actual number of merger enforcement actions up a bit in the last year.

In non-merger enforcement, it's not really possible to come up with any meaningful comparison of the number of enforcment actions to the universe of occasions for such actions: How could you define that universe? How many horizontal or vertical agreements do you suppose occurred last year in our economy? So I'll just give the raw numbers, including consent agreements accepted for comment and administrative complaints for litigation.

Fiscal Year Actions
1993 11
1994 11
1995 12
1996 7
1997 4
1998 13

Again as you will see from the table in my text, the numbers were steady at 11 or 12 for 1993 through 1995, dropped to 7 for 1996 and 4 for 1997, then popped up to 13 again for 1998. You could say there was a gaudy increase from '97 to '98 of 225 percent, and look for the explanation for this enforcement firestorm, but it's probably a lot more realistic to say the apparent range of variation is mostly a "small numbers" artifact.

So if there isn't any sort of clearcut trend in the number of cases brought, at least at the FTC, what has created the feeling, memorialized in the title of this conference, that antitrust presents a "changing legal environment," and a menacing one at that? I think there are quite a number of qualitative developments that may have contributed to that feeling, but I will argue that those are positive developments that we as taxpayers and citizens should welcome.

Greater Attention to Process

One way in which we may have changed the legal environment is by devoting a lot of attention to the integrity of the processes by which we develop cases, and of the remedies we obtain for violations.

To maintain the integrity of the premerger notification process, for one example, the Commission last year obtained a $5.6 million civil penalty against firms that consummated a transaction without filing their HSR forms, despite knowing that their deal posed serious problems and that they were violating the HSR Act.(1) Nor does negligent, as opposed to knowing, violation of the HSR Act necessarily escape punishment. This past Spring, the Commission obtained in federal district court an agreed civil penalty of $500,000 against Loewen Group, Inc., for failure to make its HSR filing in its acquisition of Prime Succession Inc. Although the Commission did not find the violation to be intentional, and we generally do not seek penalties for first-time negligent violations, we always examine the circumstances of each unlawful failure to file to determine whether we should exercise prosecutorial discretion and seek no penalty. In this case, Loewen was an experienced acquirer, intimately familiar with the HSR process, and it knew that the acquisition it planned--one of the three largest funeral home chains buying the fourth largest, which operated in many of the same markets--would receive antitrust attention. If its failure to file was inadvertent, that inadvertence surely did not flow from unfamiliarity with the process. Instead, it may have had more to do with the fact that Loewen faced a deadline to close the deal and the loss of a large down payment if it didn't meet that deadline. HSR simply cannot survive as a credible and serious process if we let people profit handsomely from their negligence.

For obvious reasons, we attach similar importance to expeditious, good faith compliance with the compulsory process we issue in the whole range of our investigations. While the great majority of parties with whom we deal act diligently and in good faith, occasionally we see conduct that reminds us of the old story of the prisoner brought before the king to be put to death. The prisoner knew the king set great store by his favorite horse, and he had an idea. He said, "Your majesty, if you will spare my life I will teach your horse to talk!" The king was pretty skeptical, but he finally said, "I'll give you a year. But if you fail your death shall be a horrible one." The guard leading him away was curious: "Why did you make that crazy promise?" The prisoner replied, "In a year, I might die anyway, or the king might die. Or who knows? The horse might talk!" Counsel may simply feel that things can't get worse with delay, and who knows, the horse might talk.

We do not want to wait for the horse to talk. We guard the integrity of our processes jealously, and in an appropriate case will bring an action to enforce a subpoena that has not been complied with by the return date or a date agreed upon in advance, or where the response is incomplete, or where insubstantial claims of privilege are interposed.

Greater Attention to Remedies

Just as we have been paying attention to the integrity of our processes, so we have been looking closely at our remedies. It would be a pyrrhic victory to get a consent order requiring a line of business to be divested if the divestiture were to take place a year later and the assets had shriveled to ineffectiveness in the meantime. The purpose of a merger order is to restore the competition that is being eliminated by the merger. If the divested assets aren't out there competing vigorously, then we would have failed in that purpose. We have therefore taken several steps to shorten the time to carry out divestiture remedies and increase the likelihood that these divestitures will provide meaningful relief. We have done this in large part by encouraging respondents to identify a buyer for the divestiture assets when the consent agreement is first presented to the Commission. Not only does this "buyer up front" policy reduces the time between final order and divestiture approval to zero, but it makes us more confident that the divestiture package is inclusive enough to attract a buyer that can effectively restore competition in that market. And a buyer up front limits the amount of time the respondent will have control of the assets, and sharply reduces the danger that it will "waste" those assets.

At least in terms of what we can most easily measure, the time to divestiture, the results have been dramatic. Two years ago, the average time from issuance of a final order in a merger case to divestiture was 15 months. By last year, we reduced that number to seven months. For Fiscal Year 1997 and 1998 to date we have reduced that time to an average of only 3 months.

Of course, we have also been putting increased effort into our own evaluation of the adequacy of the divestiture package, and making increased use of so-called "crown jewel" provisions in our orders -- provisions which call for divestiture of a broader group of assets when the initial divestiture does not succeed within the prescribed time, in those cases in which a buyer is not identified up front. I'd venture to guess that all of these changes in our approach to merger relief have put additional burdens on both outside and corporate counsel in these cases. But we firmly believe the public is well-served by this new approach.

Obviously, however, the best-drafted orders we can put together will be of little use if they aren't complied with. So we've also pursued a very firm compliance enforcement policy. I won't go into detail, but within just the last year or so we've reached agreement on civil penalties of (1) $3 million from Schnuck's Markets for failure to maintain the value and competitive viability of a group of stores it had agreed to divest;(2) (2) $600,000 from CVS because it, like Schnuck, had failed to maintain adequately some of the assets it had agreed to divest -- before transferring the pharmacies at issue to Eckerd, the divestiture purchaser, CVS had removed its automated computer prescription system, creating big problems for Eckerd in accessing customers' prescription records;(3) (3) $900,000 from Rite-Aid to settle charges that it failed to divest three drug stores in Maine and New Hampshire under a 1994 order;(4) and (4) $2.5 million from Columbia/HCA Healthcare Corporation to settle charges that it failed to divest hospitals in Utah and Florida in a timely manner, failed to hold the Utah hospitals separate until divestiture, and failed to carry out other obligations.(5)

Willingness to Litigate

Practically everything I've just been talking about has taken place through a consent process. But the ability to get tough relief from that process of course depends on a demonstrated willingness to fight rather than fold. I think we've shown that willingness quite clearly, especially in the last couple of years.

For one example, take the Staples/Office Depot case. When the Commission decided to go to court to block that merger, it was quite widely suggested that we were going to get our heads handed to us, and a fair number of editorialists seemed to think we deserved it. And then the parties offered a settlement that would have involved divestiture of 63 office supply superstores to OfficeMax, Inc., number three in the market. In early April, 1997, the Commission rejected that proposed settlement. While the Commission did not state its reasons, Bureau Director Bill Baer observed that the settlement proposal simply didn't solve the competitive problem our complaint addressed. The evidence clearly showed that prices were lowest in markets with three superstore chains, higher where there were only two, and highest of all when there was only one. The settlement proposal would have restored competition in the markets that were going from two chains to one, but not in those markets going from three chains to two. Moreover, in many two-chain markets not currently served by one of the merging parties, that firm had plans to enter. That competition could not have been restored by a settlement that countenanced the survival of only two of the chains. The outcome was that our staff litigated the case to the end, and won a complete victory.(6)

Another recent case, less well known, also illustrates our willingness to reject a bird-in-the-hand settlement when the relief offered doesn't do the job. MEDIQ Inc.'s proposed acquisition of Universal Hospital Services ("UHS"), involved the two largest firms in the country that rent durable, movable medical equipment. The parties offered so-called "fix it first" relief that the Commission, in August 1997, determined would be inadequate. The acquisition would have given MEDIQ a near monopoly in the national market, and a near monopoly in numerous local geographic markets as well. The relief the parties proposed involved Medical Specialties, a firm that currently rents infusion pumps to home healthcare customers. The parties proposed to sell Medical Specialties equipment for rentals, and provide it with an option to lease several facilities. But the new firm would have had a substantially smaller inventory than UHS, which itself was considerably smaller than MEDIQ. Second, customers -- particularly national ones, like hospital buying groups -- testified that Medical Specialties would not have the amount and breadth of equipment, the necessary track record, and the experience with hospitals' needs to replace UHS. Finally, much of the business that Medical Specialties claimed it needed in order to successfully compete in the hospital rental market was under long-term exclusive contracts with UHS and MEDIQ. The Commission authorized staff to seek a preliminary injunction.(7) After the parties failed to convince the district court to impose their settlement terms on the Commission, they dropped the transaction on the eve of the injunction hearing.

Just this past summer, we successfully litigated three important merger cases simultaneously. One was a hospital merger case, a field perceived by some commentators to hold substantial litigation risk because the agencies had lost a number of hospital merger cases recently. The other two cases, actually tried in tandem, involved parallel mergers of giant drug wholesalers, which would have consolidated the top four in the country into two.

In the hospital merger case, involving Tenet Healthcare -- the second largest hospital chain in the country -- merging the only two commercial hospitals in Poplar Bluff, Missouri, the issues were the proper geographic market, almost always hotly contested in these cases, whether the hospital to be acquired was "flailing" though not failing, and whether the merger would result in efficiencies that should overbear the loss of competition. We were happy to be joined as plaintiffs by the State of Missouri, an element I wouldn't want to underestimate. The judge followed the Merger Guidelines analytical approach, essentially finding that the merger was not necessary to the achievement of efficiencies and that any efficiencies realized by the merger were unlikely to passed through to consumers.(8)

In the drug wholesaler cases, McKesson Corp. sought to acquire AmeriSource Health Corp., and Cardinal Health, Inc. sought to acquire Bergen Brunswig Corp., in transactions that would have left the two survivors in control of over 80 percent of the prescription drug wholesaling market. We filed the two actions in the District Court for the District of Columbia in March, and litigation of these preliminary injunction actions consumed roughly seven weeks in June and July. Judge Sporkin delivered a 73-page opinion enjoining the two transactions at the end of July, and as you can appreciate, it cannot even be summarized here.(9) Suffice to say that the most hotly contested issues included the relevant product market, barriers to new entry, whether so-called "power buyers" could negate the wholesalers' market power, the importance of any efficiencies to be realized, and whether the competitive problems could be resolved by some form of "regulatory" relief premised on the parties' pledge not to increase prices and to pass on 50 percent of any cost savings. We believe the treatment of these issues in the court's opinion has made an enormous contribution to merger jurisprudence, the recent development of which may have suffered somewhat from the frequency with which cases are resolved by consent.

Evolution of Antitrust Doctrine

In addition to what one might call the mechanics of enforcement -- process, remedies, willingness to litigate -- I am sometimes asked whether there are substantive changes in the way the enforcement agencies are applying the law. Here I think perhaps Mark Twain had it right: reports of these substantive changes have been greatly exaggerated.

It is a commonplace, of course, that the Supreme Court has declared, and history has borne out, that the antitrust statutes have an almost constitutional quality to them, in terms of their capacity to evolve with the development of economic understanding of the significance of particular forms of business conduct. It is also true that economics in general and industrial organization economics in particular continues to evolve. But the pace of these changes has hardly been dizzying. In the four areas that I have most often heard cited as reflective of "new thinking" in antitrust -- game theory, unilateral effects, raising rivals' costs, and network effects -- the policy roots go back a decade and the roots in economic writings go back much further than that.

Game Theory

Let me start with game theory. I should emphasize that this will be an extremely brief summary, not a technical essay. For those who would like to look a little further into the subject, let me mention a short piece I published in the Spring 1997 issue of the George Mason Law Review,(10) and a longer and more thorough analysis of the subject by Jonathan Baker, the Director of our Bureau of Economics, in 1993.(11) The present discussion borrows substantially from those treatments.

The seminal work in game theory was von Neumann and Morgenstern's treatise in 1944.(12) Extensive discussion of the implications for industrial organization were found in Martin Shubik's work in 1959,(13) Telser in 1972,(14) and Friedman in 1977.(15) As with some of the Chicago School ideas that appeared in George Stigler's influential article in 1964(16) and did not take center stage in the policy arena until nearly two decades later, game theory's influence has been long in coming. Even then -- perhaps unlike the Chicago School ideas -- its influence has not been sudden and dramatic, but rather evolutionary and subtle.

The simple fact is that formal game theoretic analysis has not started showing up in briefs, opinions, white papers, or agency analyses. Rather, the game theoretic perspective has tended to reinforce litigators' traditional emphasis on the "story" of a case -- what actually happened or is likely to happen to competition in a particular case based on particular facts -- at the expense of appellate courts' traditional search for simplifying "rules." The clearest example of game theory's influence was in the issuance of the Horizontal Merger Guidelines during the Bush Administration, but game theory has also affected perceptions about the behavior of oligopolies and is beginning to be seen in the treatment of vertical restraints.

As Baker's Antitrust Bulletin article recounts, the structuralist thinkers of the 1950s and 1960s believed that supracompetitive pricing was nearly inevitable in oligopolies because each firm, aware that rivals would react to any price cuts by cutting prices themselves, would refrain from such cuts. But Professor Stigler's 1964 article demonstrated that before firms could enjoy supracompetitive pricing by explicitly or tacitly cooperating they had to solve three problems: identifying the terms of the understanding, detecting deviations from those terms, and punishing such deviations.(17) Because Stigler studied what would now be called a "one-shot game," it appeared that oligopolists would almost never be able to reach the cooperative, supra-competitive result. If each firm must make a single decision, the superior strategy would be to "cheat" by pricing competitively, because it would work whether rivals cheated or not.

What modern game theory shows, however, is that the solution is much more complicated if the situation is analyzed as a "repeated game" in which firms know they will interact again and again. Such analysis suggests the firms will be able to maintain the supra-competitive price so long as they are able to detect and respond to "cheating" rapidly.(18) There is a great deal more to be said about this, of course; but for present purposes it is enough to note that the implication of this insight for antitrust enforcement is that we need to pay a good deal more attention to oligopolistic coordination than the original Chicago-school analysis would have suggested.

As noted above, the application of game theory to horizontal merger analysis has shown up in the evolution of the enforcement agencies' Merger Guidelines. While the 1968 Guidelines(19) focused almost exclusively on market share thresholds, subsequent Guidelines in 1982,(20) 1984(21), and 1992(22) have reflected increasingly explicit concern with the oligopoly issues already discussed -- whether the parties post-merger are likely to be able to reach terms of coordination, detect deviations, and punish those deviations. This approach represents an analytical advance, but it lends itself far less well to objectively measurable standards, and instead emphasizes the "story" that can be told about such factors as the past conduct of industry participants, the "hot documents" that can be identified, and the reactions of industry customers, becoming much more qualitative and judgmental.

Game theory considerations also impinge on the analysis of vertical restraints and vertical mergers in a couple of ways. One concern, of course, is that such restraints or mergers may serve to facilitate coordinated interaction among competitors. A second concern is that they may serve to raise rivals' costs, preventing the rivals from exercising as effective a constraint on price and perhaps permitting a profitable price increase. While the initial focus of raising-rivals'-costs analysis is on price-cost functions, the playing out of that analysis raises game-theoretic issues such as the optimal counterstrategy of the disadvantaged rival, and whether the vertical merger or contract partner that is approached by the party seeking to raise its rivals' costs would not recognize the supra-competitive potential in the arrangement and hold out for a price that would drain the strategy of its rewards.

A tangible example of the element of complication introduced into antitrust by game theoretic analysis can be seen in the movement from the simplifying assumptions of a case like Matsushita Electric Industrial Co. v. Zenith Radio Corp.(23) to Eastman Kodak Co. v. Image Technical Services.(24) Matsushita essentially turned on the proposition that the plaintiffs' central antitrust claim "simply [made] no economic sense" -- was implausible. So long as the economic analysis that seemed applicable to various potential offenses, such as resale price maintenance, vertical non-price restraints, tying, and so on, was relatively simple, a great many cases could be disposed of by the implausibility rubric. But in the Kodak case this approach foundered. As against the defendant's argument that it possessed no market power in the equipment market and thus it made no economic sense to say it could exercise such power in the market for parts for the equipment, the Supreme Court found a triable question whether the costs to customers of obtaining information (before purchasing the equipment) or switching from the equipment (after purchasing it) gave Kodak the ability to realize supra-competitive prices for parts. The availability of more and richer models of economic behavior thus expanded the domain of the fact-finder and contracted that of the law-finder. That is not to say that every case must be buried in an avalanche of facts. Per se rules and "quick look" approaches are both well-entrenched in the law and economically rational ways to avoid unnecessary cost. But at the margin, where there are both plausible anticompetitive effects and plausible efficiencies, antitrust analysis tends to be more fact-intensive than in the recent past. The implications of this change are gradually being worked out in a variety of fora by a variety of players: the courts, private litigants, academicians, parties presenting their arguments to the agencies, and the agencies themselves.

Unilateral Effects Analysis in Mergers

The 1992 Horizontal Merger Guidelines draw the distinction between mergers that will be judged anticompetitive because they make coordinated interaction more likely or effective among the remaining firms, and those that make it profitable for the merger survivor to actunilaterally to reduce output and raise price. There is no question that our recent merger cases have seen an increased emphasis on unilateral effects concerns, and that this represents a significant evolution from the era of the 1982 Guidelines. Yet the ideas are not particularly new. Both the 1982 Guidelines (§ III.C.1(c)) and the 1984 Guidelines (§ 3.413) contained identical language stating:

Where products in a relevant market are differentiated or sellers are spatially dispersed, individual sellers usually compete more directly with some rivals than with others. . . . If the products or plants of the merging firms are particularly good substitutes for one another, the Department is more likely to challenge the merger.

Thus, the attention to unilateral effects is not conceptually new. Rather, what has happened seems to be that developments in theoretical literature have allowed us to understand such effects better and to model them more precisely, and data such as those derived from point-of-sale scanners have become available to allow us to measure better the extent to which consumers regard particular products as close substitutes that exercise a particularly significant constraint on each other's prices.(25)

Raising Rivals' Costs

Another analytical development that has affected antitrust analysis is the "raising rivals' costs" model propounded by Salop and others in the mid-1980s.(26) I've already touched on this subject in the "game theory" context. In simplified form, it posits an upstream and a downstream market, both of which are behaving competitively before the merger or exclusive dealing arrangement. The merger or contract results in one of the upstream firms refusing to supply inputs to the protagonist firm's unintegrated down stream rivals, facing them with higher input prices because they have to turn to less desirable and more expensive sources of supply. With higher costs, the rivals are forced to raise prices and allow the protagonist firm supra-competitive profits. The effect of this model and its more sophisticated variants is to make it much more difficult for courts and enforcers to apply a presumption that no antitrust violation could have occurred because it was economically implausible within the meaning of the Matsushita case. Instead, we have had to read the companies' documents, interview or depose customers, suppliers, and competitors, consult industry experts, and so on. Among the enforcement actions resulting from this process are Pacificorp/The Energy Group,(27) Lilly/PCS, Merck/Medco,

Network Industry Concerns

Another area of growing analytical concern in recent years is the recognition of network effects in certain industries. Such industries are characterized by increasing returns to scale, not from economies of scale in production, but from the fact that each user benefits from the existence of more other users. In the example that has become a cliche, telephone networks become more useful as the number of network users increases. Like supply-side economies of scale, these network effects may begin to taper off before the entire market demand is satisfied (physician networks in large urban areas may be an example), or may persist throughout the relevant range, giving them characteristics of natural monopolies.

Understood as a species of economy of scale, it becomes readily apparent why the incorporation of network effects into antitrust analysis has been seamless and relatively uncontroversial. Network effects are not a new theory of competitive harm, nor is antitrust particularly hostile to network effects. Indeed, network effects benefit consumers, just as the attainment of economies of scale benefits consumers. On the other hand, of course, the presence of network effects may mean that entry is difficult or that exclusionary conduct is more likely to pay off, just as would be the case with more traditional economies of scale.

Typically, we are looking at network effects in the market where the merger or conduct is taking place. Sometimes, however, network effects at the supplier or customer level are important. In the Commission's Rite Aid/Revco merger case (28) in 1996, a merger of pharmacy chains gave rise to concerns because of network effects in the market for a major type of customer, the pharmacy benefit managers, or PBMs, that in effect buy retail distribution services from pharmacies and sell them to health insurance plans and employer groups. PBMs typically organize a network of participating pharmacies by contracting with chains and independent pharmacies. In order for PBM networks to be credible to their customers -- the insurance plans and employer groups -- they need to have widespread geographic coverage. In many markets, it would be feasible to obtain such geographic coverage without the pharmacies of Rite-Aid or without the pharmacies of Revco, but doing without both would be either impossible or extremely costly. As a result, the merger of Rite-Aid and Revco would allow the merged firm to extract much more favorable terms from the PBMs. In turn, this would have had significant effects on the PBMs' ultimate customers -- the employees and other insureds who depend upon their health plans for affordable coverage of pharmaceuticals. The Commission voted to challenge this merger, and the deal was withdrawn.

Efforts to Reduce Burdens on Business

Most of the direction of the industrial organization literature of the past couple of decades has been away from models that assume away difficult issues and toward models that are very hungry for real facts. That means an increased burden on both staff and the subjects of our investigations. At the Commission, we are very sensitive to the potential for our investigations to impose a burden on business, and we've taken a number of steps, many in concert with the Department of Justice, to make the antitrust environment more "user-friendly" in terms of both its processes and what might be called its "transparency" -- by which I mean improved communication of the substantive antitrust standards we are applying.

Much of the procedural improvement has had to do with the operation of the Premerger Notification program under the Hart-Scott-Rodino Act.(29) Inn March 1996, the Commission, with the concurrence of the Department of Justice and after working closely with the private sector, adopted five amendments to the premerger rules that broaden the classes of transactions that are exempt from HSR requirements.(30) These amendments clarified and broadened the kinds of acquisitions exempt from HSR requirements as transfers of goods or realty in the "ordinary course of business." They also exempted the acquisition of certain categories of real property assets, the acquisition of oil and natural gas reserves valued below certain dollar thresholds, and the acquisition of securities whose underlying value is represented solely by those kinds of exempt assets. Another rule exempted acquisitions by certain investors of rental real property. Then, in July of this year, the Commission amended Rule 802.70 to exempt from the HSR reporting requirements acquisitions of stock or assets required to be divested by an FTC order or order of any federal court in an action brought by the Commission or the Department of Justice.(31) Rule 802.70 already exempted from reporting obligations transactions that satisfy divestiture requirements under Commission final orders, and this amendment extends the exemption to transactions entered into before the order has been made final. And we have other changes about to emerge from the pipeline, including a long-awaited set of changes to the premerger notification reporting form that we believe will be welcomed by practitioners.

We have also taken steps to improve our handling of filings to identify more rapidly and accurately the transactions that actually raise antitrust concerns. In 1995, we and the Department of Justice agreed on steps to expedite the so-called "clearance" process -- the mechanism by which we and the Antitrust Division decide who will pursue an investigation in which both agencies are interested. The significance of this for practitioners is that delays in deciding clearance reduces the portion of the waiting period available to the investigating agency to determine whether a second request is needed. An earlier resolution of clearance results in more focused investigations and better-informed second-request decisions, and can reduce the number of cases in which a second request must be issued. We also acted to make second requests less burdensome when it is necessary to issue them, by developing with DOJ an annotated model second request to guide our respective staff investigators. In conjunction with this model, we have continued to use, whenever possible, a "quick look" approach that encourages document production in stages, focusing first on the easiest issues that can be determinative in resolving competitive concerns, with the possibility that full document production won't be necessary.

In the "transparency" area, I'd point first to the joint guidelines -- or modifications of earlier guidelines -- that we have issued with the Department of Justice over the last three or four years, covering such key topics as intellectual property,(32) international operations,(33)health care providers,(34) and horizontal mergers.(35) The Commission also authorized its Office of Policy Planning to undertake a project to clarify and update antitrust policies on joint ventures and other forms of competitor collaborations, an effort now ongoing with the cooperation of the Department of Justice.

We regularly provide advisory opinion guidance on antitrust issues, where appropriate; and this guidance hs been especially widely sought with respect to the difficult issues that arise under the Health Care Guidelines. And our Premerger Notification Office has earned what I believe is an excellent reputation among practitioners for providing technical advice on that program's requirements, averaging a staggering eight hundred phone calls per week. As the volume of such calls has risen with the volume of mergers and acquisitions, that office has installed an automatic phone answering system to improve their handling.(36)

In the critical area of improving public understanding of our specific enforcement actions, the great majority of which are resolved by consent and thus don't result in written opinions, we adopted a few years ago a policy of releasing more thorough -- and, we hope, more understandable -- Analyses to Aid Public Comment with each consent agreement accepted for comment. And in the effort to clarify the substantive antitrust law on a grander scale, we have on a limited number of occasions filed or joined in filing amicus curiae briefs in important cases, including the landmark 1997 Supreme Court case, State Oil Co. v. Khan.(37)

What Hasn't Changed

I've talked about some incremental changes in the antitrust environment. But it should be apparent that the fundamentals haven't changed. We may ask for more facts these days before making a decision, but the purpose of those facts is still to determine whether a merger or a restraint harms the working of the market. We still have a deep and abiding commitment to free markets work, believing that competition generates the best products at the lowest prices, spurs efficiency and innovation, strengthens our economy, and produces benefits for everyone. We still believe that we should do our utmost to preserve the efficient aspects of business arrangements, whether merger transactions or contracts, while rooting out their anticompetitive, anticonsumer, aspects. It is truly a privilege to be an antitrust lawyer today, carrying on these deep-rooted traditions that have become so fundamental to our nation's -- and these days the world's -- economic life.

Endnotes:

1. U.S. v. Mahle GMBH, Civil Action No. 1:97CV01404 (D.D.C., filed June 19, 1997),

2. FTC v. Schnuck's Markets, Inc., Civ. No. 01830 (E.D. Mo., filed Sept. 5, 1997). Schnuck's also agreed to divest two additional stores to help restore the competition lost by its conduct.

3. FTC vs. CVS Corporation, Civil Action No. 98-0775 (D.D.C., filed March 26, 1998). CVS also paid a fine of $1.58 million to the Virginia Board of Pharmacy for violating its regulations about the proper transfer of prescription records.

4. FTC v. Rite Aid Corporation, Civil Action No. 98-0484 (D.D.C.) (order entered Feb. 27, 1998).

5. FTC v. Columbia/HCA Healthcare Corporation, Civil Action No. 98-01889 (D.D.C., filed July 30, 1998).

6. FTC v. Staples, Inc., 977 F. Supp. 1066 (D.D.C. 1997).

7. MEDIQ Incorporated, FTC File No. 9710066 (preliminary injunction action authorized, July 29, 1997); FTC v. MEDIQ Incorporated, Civil Action No. 97-1916 (SS), filed Aug. 22, 1997 (D.D.C.).

8. FTC v. Tenet Healthcare Corp. and Poplar Bluff Physicians Group, Civil Action No. 98-00040 (E.D. Mo., July 30, 1998).

9. FTC v. Cardinal Health, Inc. and Bergen Brunswig Corp., Civil Action No. 98-595; FTC v. McKesson Corp and AmeriSource Health Corp., Civil Action No. 98-596 (July 31, 1998).

10. Willard K. Tom, Game Theory in the Everyday Life of the Antitrust Practitioner, 5 George Mason L.. Rev. 457 (1997).

11. Jonathan B. Baker, Two Sherman Act Section 1 Dilemmas: Parallel Pricing, the Oligopoly Problem, and Contemporary Economic Theory, 38 Antitrust Bull. 143 (1993).

12. John von Neumann and Oskar Morgenstern, Theory of Games and Economic Behavior (1944).

13. Martin Shubik, Strategy and Market Structure (1959).

14. Lester G. Telser, Competition, Collusion, and Game Theory (1972).

15. James W. Friedman, Oligopoly and the Theory of Games (1977).

16. George Stigler, A Theory of Oligopoly, 72 J. Pol. Econ. 44 (1964).

17. George Stigler, A Theory of Oligopoly, 72 J. Pol. Econ. 44 (1964).

18. Carl Shapiro, Theories of Oligopoly Behavior, in 1 Handbook of Industrial Organization 329, 361-66 (Richard Schmalensee & Robert D. Willig eds., 1989).

19. Department of Justice Merger Guidelines (1968), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,101.

20. Department of Justice Merger Guidelines (1982), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,102.

21. Department of Justice Merger Guidelines (1984), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,103.

22. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (1992), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104.

23. 475 U.S. 574 (1986).

24. 504 U.S. 451 (1992).

25. See Jonathan B. Baker, Unilateral Competitive Effects Theories in Merger Analysis, 11 Antitrust 21 (1997).

26. E.g., Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power over Price, 96 Yale L.J. 209 (1986).

27. [CITE]

28. Rite Aid Corp., FTC File No. 961 0020 (authorization for preliminary injunction action Apr. 17, 1996; transaction abandoned Apr. 26, 1996).

29. 15 U.S.C. § 18a.

30. 61 Fed. Reg. 13666 (Mar.18, 1996).

31. 63 Fed. Reg. 34592 (June 25, 1998).

32. Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,132 (1995).

33. Department of Justice and Federal Trade Commission, Antitrust Enforcement Guidelines for International Operations, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,107 (1995).

34. Department of Justice and Federal Trade Commission Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,153 (1996).

35. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (1992), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104, as revised April 8, 1997.

36. It has also migrated, this year, to a new, Oracle-based computer system to allow processing of the peak levels of filings now being received, a step that improves both internal processing capabilities and the ability to respond to inquiries from filing parties.

37. 118 S. Ct. 275 (1997).