« GAO Says Bajagua Project Has Many "Unresolved Issues" | Main | Senator McCaskill Is the Engine of the Accountability Train »

Apr 28, 2008

Comments

Kenneth Davidson

The Defense industry mergers that were foreseen/encouraged during the "Last Supper" were made possible by the novel antitrust review and settlement procedures used by the US Federal Trade Commission during the Chairmanship of Robert Pitofsky under the administration of President Bill Clinton. The mergers that the FTC identified as anticompetitive were nevertheless permitted under FTC consent orders that regulated the post merger behavior of the consolidated firm in a manner that purported to maintain competition. Despite finding that the proposed mergers of the defense industry firms, Lockheed and Martin Marietta and the subsequent acquisition of Loral by Lockheed Martin would likely reduce competition substantially, the FTC allowed the mergers on the condition that erect internal information "firewalls" to prevent the consolidated firm from using proprietary information held by the acquired firm about remaining competitors. Neither the FTC nor the public knows whether these "firewalls" did in fact preserve competition by maintaining the confidentiality of proprietary information because the firewall mechanism depends on the honesty of self reporting system established by the consolidated firm. The Loral order permitted an incongruous arrangement in which part of Loral continued as a separate rival company even though it was to be partially owned by Lockheed. The CEO of the surviving Loral company was allowed to sit on the Lockheed board directors and barred only from discussions and votes on matters that involved matters that concerned the direct rivalry of the two firms. See FTC press release dated April 18, 1996. Traditionally American merger law had forbidden anticompetitive mergers trusting that competition would be preserved only by rival interests of competitors and rejected the notion that unverifiable promises or good intentions could substitute for market forces. Have those novel FTC remedies contributed to our present problems. It appears that the number of surviving defense firms is now so small that effective competition between American firms no longer exists with the expected result that quality, innovation, and service has diminished and prices have risen.
Kenneth Davidson
Senior Fellow
American Antitrust Institute

The comments to this entry are closed.