Eliminating competition: The Zeitgeist of the late 90's

[Brett Glass <brett@lariat.org>]

During a wide-ranging (and, unfortunately, too short) conversation I had
yesterday with a high ranking elected official, it occurred to me that the
most recently revealed charges against the Microsoft Corporation are merely
part and parcel of the business and corporate Zeitgeist. (The word
"Zeitgeist," for those who have not heard it before, is German. It means,
literally, "the spirit of the times" -- that is, the set of broad trends
that drives the world in which we live at any particular moment.)

With the stock market soaring due to investments by the aging Baby Boom
generation,  large corporations need to keep their price-to-earnings ratios
within reasonable bounds. To do this, they need to squeeze still more
dollars out of the markets they serve. But, having downsized all they can,
they must now look to other tactics to increase profits.

These companies now look to mergers, "virtual mergers," and consolidations
for two purposes. First, the mergers and consolidations offer minor
opportunities for additional staff cuts -- though nowhere near as big as
those that have already occurred. But second, and more importantly, they
allow the elimination of competition and consumer choice, allowing the
companies to bolster their revenues by charging higher prices. The recent
rash of attempted and completed corporate combinations includes SBC and
Pacific Bell, Bell Atlantic and NYNEX, MCI and WorldCom, Northrop Grumman
and Lockheed Martin (each the product of a gigantic merger itself), Wells
Fargo Bank and First Interstate Bank, and more. At the same time, airlines
are perfecting the technique of building and defending "fortress hubs,"
while at the same time attempting "virtual mergers" -- agreements in which
they limit market choice via "code sharing" -- where they know that actual
mergers will not be allowed.

While Microsoft's profits are already astronomical, the company feels
compelled to maintain its record (and, in the long run, probably
unsustainable) revenue growth. Thus, its recent actions incorporate many of
these choice-limiting techniques. The "dirty pool" tactics in which
Microsoft seeks to disable competitors' products are similar to those used
by long distance carrier AT&T, which blocks or diverts calls made to MCI's
800 number (the only way to use MCI's calling card services). However,
Microsoft's "sabotage" of products in markets it would like to own is more
insidious still, since the user cannot just move to another pay phone. (In
fact, it is unlikely that he or she will have sufficient technical
knowledge to undo the damage.)

Nonetheless, Microsoft's actions are only one extreme example of a trend of
which we must all be aware: an attempt by large corporations -- after the
80's and early 90's trend toward deregulation -- to cash in on deregulation
or a historical lack of antitrust enforcement by destroying the remaining
check on their market power: competition. Unfortunately, forbearance is not
a normal part of most corporations' behavioral repertoires. In fact,
executives who truly embrace open market principles (rather than giving
them lip service and then working to foreclose competition, as has occurred
in local telephone markets) may be the targets of shareholder lawsuits.
Therefore, the late 90's and the early years of the 21st Century will be
marked by increasing frustration on the part of consumers, and the tide
will turn toward greater antitrust enforcement and government oversight.
These moves will come reluctantly at first, especially because of the Baby
Boom generation's justifiable distrust of government and its desire to see
its retirement investments multiply. In many cases, efforts to preserve
open, competitive markets will be too late to prevent the destruction of
worthy entrepreneurs and innovators. However, they will ultimately be seen
by the overwhelming majority of citizens as necessary to forestall the
dawning of a second "Gilded Age." 

The long term success of such efforts will depend upon the extent to which
they are limited to enabling fair and free markets rather than imposing
arbitrary constraints. (One model of success in this area is the Securities
and Exchange Commission (SEC), a responsible,      conservative body which
has done a remarkable job of maintaining free and open markets in
investment vehicles.) When the inevitable hue and cry arises among
consumers, it will be important to implement mechanisms designed to
stabilize the situation in the long term, rather than adding momentum for
yet another swing of the "power pendulum."

Copyright (c) Brett Glass 1998
These remarks may be republished with proper attribution only.