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Life, Liberty, and Haagen-Dazs
[March 5, 2003]

By S. M. Oliva

The Federal Trade Commission set a new low yesterday when it announced plans to block a merger between Nestle Holdings, Inc. and Dreyer's Grand Ice Cream, Inc., two of the world's largest ice cream makers.  In announcing the FTC's decision to seek an injunction against the merger, Bureau of Competition director Joseph Simons said: "This merger, as structured, would likely raise prices and reduce choice for consumers...The market for superpremium ice cream is already highly concentrated, and this deal will reduce the number of significant competitors from three to two."

Most antitrust cases result from the government's manipulation of market definitions. Here, that manipulation is painfully convoluted, even by traditional antitrust standards. Simons argues there are distinct markets within the overall ice cream market: "superpremium" ice cream, and another market for non-premium ice cream. Under this theory, consumers never mix their ice cream purchases between the two classes. At least that seems to be the theory, given that market analysis requires the government to decide which products are valid "substitutes" for one another. Since the FTC rarely explains themselves beyond sanctimonious declarations of acting in the "public interest," it's hard to know just what Simons and his Bureau of Competition cohorts were thinking here.

Regardless of whether there's truly a distinct market for "superpremium" ice cream, there's still nothing that justifies the FTC's action against Nestle and Dreyer's. Protecting consumers from the sheer horror of possibly paying $1 more per gallon for Haagen-Dazs does not constitute a compelling, valid, or rational exercise of government power. There is no "right" to cheap ice cream, superpremium or otherwise.

Nor is the FTC's action an isolated incident. Under the reign of Bush appointee Timothy Muris, the FTC has taken an expanded (and frankly bizarre) interest in regulating even the most niche of markets, especially in the food industry. Last year, the FTC managed to successfully derail a merger they claimed would unfairly corner the jarred pickle market. Another merger involving "food service glassware" was halted, despite the fact industry analysts had never seen that term used prior to the FTC's action. Under Muris's leadership, market definitions are wholly subjective, as he's empowered FTC staff lawyers to exclude whatever competitors they need to in order to justify an antitrust action. This is not law enforcement, but a corporate form of racial profiling-if you see a successful company, they must be doing something wrong, so they must be prosecuted in the absence of any valid evidence.

As news of the FTC's action spread, shares of Dreyer's fell sharply, causing the company's market value to fall almost $600 million yesterday. Such wealth destruction must hearten Muris, a career antitrust lawyer who's never had to create wealth in the private sector. Given that the entire FTC is composed of lawyers with scant business experience, you have to wonder whether the commissioners may secretly revel in their ability to financially hurt an innocent company by simply exercising arbitrary power.

Last year, the Federal Communications Commission, another player in the antitrust racket, managed to create a massive financial loss for EchoStar Communications. The FCC voted to block EchoStar's merger with Hughes Electronics, which forced EchoStar to pay a $600 million contractual penalty to Hughes, a division of General Motors. The FCC voted to block the merger despite support from normally pro-antitrust "consumer" groups, and despite the knowledge that their action would subject EchoStar to the massive penalty. When you add an additional $90 million EchoStar spent on legal fees related to the merger, the company's reported loss in the last fiscal quarter topped $710 million.

Arguably, the FCC's actions constituted a "taking" of property under the Fifth Amendment, since EchoStar was deprived of their property for a "public use"-that being the FCC's claim the merger was against the "public interest." Certainly the stockholders of EchoStar are entitled to some relief for the government's arbitrary, harmful, and vicious attack against their property rights.

Certainly, the antitrust regime led by the FTC and FCC possess no valid constitutional basis. Congress's power to regulate interstate commerce-the stated pretext for the antitrust laws-does not give it the power to actively destroy commerce. Instead, the power grants Congress the authority to establish uniform rules of conduct so that any businessman can enter the market and try to succeed on their merits. Antitrust, in contrast, throws merit out the window, and instead decides business success based on political expediency and the so-called "expertise" of antitrust lawyers. This is precisely what happened to Nestle, Dreyer's, and EchoStar. Their business judgment was overruled by government lawyers with no knowledge or experience in the marketplaces they now regulate at-will.

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