FTC Chairman Testifies Before Senate Subcommittee on Commission's Antitrust Enforcement Activities

Stresses "Bedrock Principle" that Protecting Competition Enhances Consumer Welfare

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For Release

Presenting Federal Trade Commission testimony today before the U.S. Senate Judiciary Committee's Subcommittee on Antitrust, Business Rights, and Competition, Chairman Robert Pitofsky* provided an overview of the FTC's active role in enforcing the United States's antitrust laws, and stressed the Commission's belief in the "bedrock principle that protecting competition by preventing [the] improper creation, acquisition, or exercise of market power enhances the welfare of consumers."

"The Commission is charged with the enormous responsibility of ensuring that consumers receive the benefits of a competitive marketplace," the testimony said, "a mission that we share with the U.S. Department of Justice. We welcome that responsibility and believe that we are fulfilling our obligation." Competition "is the best way to ensure that consumers receive the benefits of lower prices, higher quality and quantity of goods and services, and greater innovation." The Commission specifically thanked the members of the Subcommittee for supporting the FTC's efforts, saying that he looks forward to working closely both with them and the Judiciary Committee as a whole during the remainder of the 106th Congress.

The testimony next described how U.S. and world markets are being created and redefined by forces including "the explosion of electronic commerce; deregulation of critical industries such as telecommunications, financial services, and electricity; convergence of technologies; and, indeed of markets; and globalization."

The Commission underscored its "important responsibility to ensure that antitrust policy makes sense and is sensibly and effectively applied." Equally important, according to the testimony, is the Commission's recognition of the costs that government intervention can place on private parties: "For this reason," our second guiding principle is to avoid unnecessary intrusions and to minimize, to the extent possible, the burdens placed on businesses by our efforts to protect consumers."

Highlighting the Commission's recent antitrust enforcement efforts, the testimony began with a few simple, but illustrative, facts. Over the past decade, the number of mergers reported to the FTC and DOJ under the Hart-Scott-Rodino Act has more than tripled, increasing from 1,529 transactions in fiscal year 1991 to 4,642 in fiscal 1999. So far in fiscal 2000, filings are at a record pace and are expected to surpass the record set in fiscal 1998 by more than 15 percent.

This increasing workload has led to a rededication of FTC's staff in the Bureau of Competition, with more than two-thirds of the workforce now dedicated to mergers (as opposed to other matters such as anticompetitive behavior in the marketplace). "The merger wave strains the FTC resources to the breaking point," according to the testimony. "Today's mergers are not only larger (with the dollar value of commerce affected by all mergers filed with the Commission increasing 11-fold over the past decade), but often raise novel or complex competitive issues requiring more detailed analysis."

The Commission explained that it has refocused its antitrust efforts on "conduct [that] may be designed to stifle competition in important sectors of the economy ... and that are critical to our everyday lives," such as health care, pharmaceuticals, retailing, information and technology, and other consumer and intermediate goods.

The testimony specifically cited FTC's work surrounding BP Amoco p.l.c.'s proposed merger with Atlantic Richfield Company (ARCO). That matter, which until last week was headed toward a preliminary injunction hearing in District Court, is the largest proposed merger ever challenged by the Commission, which was joined in its case by California, Oregon and Washington. It came directly on the heels of the Commission's investigation into the proposed merger of Exxon and Mobil, which resulted in a consent agreement allowing the transaction to proceed but requiring the largest retail divestiture in FTC history to avoid anticompetitive overlaps in the post-merger marketplace.

The testimony continued by discussing FTC's successful challenge to the proposed mergers of the nation's four drug wholesalers into two firms. The two surviving firms would have controlled more than 80 percent of the prescription drugs sold through wholesalers, and were likely to increase costs to thousands of pharmacies and hospitals who purchase these medications. In both cases, the Commission obtained a preliminary injunction by the court against the mergers, and the transactions were later abandoned. In addition to being a victory for consumers, the Commission said in its testimony, these cases "helped to update merger case law in several respects ... helping to make antitrust law more transparent, and providing more guidance to the business community."

Moving to food retailing, the testimony noted that "many mergers among direct local competitors have raised competitive concerns." As examples of effective enforcement action, the Commission discussed a consent agreement designed to prevent undue market concentration resulting from Albertson's acquisition of American Stores - the second and fourth largest supermarket chains in the United States. In the last 10 years, the Commission has brought more than 10 enforcement actions involving supermarket mergers, requiring the divestiture of nearly 300 stores to maintain competition in local markets.

The testimony then presented a review of Barnes & Noble's attempted acquisition of Ingram Book Group. In this matter, Barnes & Noble was the largest book retailing chain in the U.S.; Ingram was by far the country's largest book wholesaler. Despite efficiencies that could result, the Commission saw this vertical transaction as a serious threat to thousands of independent book retailers. It therefore challenged the merger, with the parties abandoning the proposed transaction before the FTC took formal action.

The Commission estimates that its merger enforcement efforts have saved consumers from paying an estimated $1.2 billion in fiscal year 1999 alone. The testimony put this number in perspective by comparing it to the Commission's 1999 antitrust budget of just $55.7 million.

The testimony also outlined the FTC's efforts to root out anticompetitive behavior in retail industries, saying that "when conduct steps over the lines of the antitrust laws, enforcement action is needed to ensure that anticompetitive practices do not deter development and procompetitive innovations. The Commission specifically cited the its recent enforcement action against Toys "R" Us, in which the FTC alleged that the company tried to use its market power to stop warehouse clubs from selling popular toys in ways that allowed consumers to make comparisons to the prices charged by Toys "R" Us. The matter is now on appeal to the Seventh Circuit of the U.S. Court of Appeals.

The testimony then addressed the FTC's recent settlement agreement with McCormick & Company for alleged use of anticompetitive "slotting allowances." The Commission also pointed to enforcement actions in more than a dozen health care-related matters, perhaps most importantly working to stop Mylan Laboratories from using agreements to inflate drug prices charged to consumers. Finally, the Commission described its recent lawsuit against two drug companies and settlements with two others for agreements that allegedly kept all generic competition off the market in two important pharmaceutical markets.

In concluding its testimony, the Commission said that the FTC has met its competition mandate by "stretching our resources, streamlining our processes, and simply doing more with less." It added that "if we are to keep up with the growing demands that will be imposed by the 21st Century marketplace, we need significantly more resources" to enable the Commission to continue its efforts to maintain a competitive marketplace for American businesses and consumers.

The Commission vote to approve the Chairman's testimony and submit a prepared copy for the record was 5-0.

*The written statement presented for inclusion in the record by Chairman Pitofsky represents the views of the Federal Trade Commission. His oral presentation and responses to questions are his own and do not necessarily reflect the views of the Commission or any other Commissioner.

NOTE: The testimony mentioned in this release, along with the release itself, is available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

David R. Thomas
Office of Congressional Relations

(FTC File No. P950101)

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