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
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