Boeing-McDonnell Douglas Merger
The Boeing-McDonnell Douglas merger announcement further signals that Big Business believes the antitrust laws in the United States are defunct. It is incumbent upon the Clinton Administration to demonstrate by its actions that this view is mistaken.
The Boeing-McDonnell Douglas merger would join the only two competitors in the U.S. commercial jet market. It would limit international competition in the industry to two firms, Boeing and the European Airbus. Industry analysts predict the Boeing-McDonnell Douglas merger will foreclose new entrance into the market for the next 15 to 20 years.
If this merger does not violate of the Clayton’s Act proscription against mergers and acquisitions where “the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly,” then the nation’s antitrust laws have no meaning.
The Boeing-McDonnell Douglas merger also clearly runs afoul of the Justice Department’s guidelines for review of horizontal mergers. Assuming, absent the merger, Boeing would have a 60 percent share of the market for new orders of commercial jets, Airbus 35 percent and McDonnell Douglas 5 percent, the Herfindahl-Hirschman Index by which the Justice Department assesses market concentration would be 4,850 before the merger, and 5,450 after the merger. Under the guidelines, any market with an Index above 1,800 is considered highly concentrated. The merger would increase the Index by 600, six times the threshold of 100 which the Justice Department guidelines say are “presumed [to] … create or enhance market power or facilitate its exercise.”
Some in the Clinton administration may mistakenly support the merger on policy grounds; if they wish to see the merger allowed, they should seek passage in the next Congress of legislation providing for a special exception to the antitrust laws to be applied to this merger. For now, the law clearly compels them to block the merger.
The merger is not only illegal; it is also a bad idea. Competition spurs lower prices, technological innovation and enhances consumer power. Although McDonnell Douglas holds a small share of the commercial jet market, it has helped keep prices down. Airline executives — speaking off the record only, for fear of offending the Boeing behemoth — say that McDonnell Douglas regularly offered lower prices for its jets in negotiations with the airlines, forcing Boeing and Airbus to drop their prices.
As McDonnell Douglas considered building a new jumbo jet line, Boeing took aggressive steps to assure the airlines would not place orders that would have helped create a jumbo jet competitor.
Indeed, Justice Department and Federal Trade Commission antitrust enforcer eyebrows should be raised at the press accounts reporting Boeing and McDonnell Douglas had been meeting for three years to discuss a potential merger. Those agencies should investigate whether Boeing and McDonnell Douglas executives discussed McDonnell Douglas’s potential entry into the jumbo jet market, and whether the McDonnell Douglas decision not to enter the market came out of those discussions.
There are still more reasons to oppose the merger. In the defense sector, the merger would limit effective competition to two companies, with perhaps a third to emerge from the remaining second tier defense corporations. The mega defense companies will have significant control in determining which defense technologies will be developed in the decades to come — and at what price. Taxpayers, who foot the defense industry bill, will pay the price.
Most worrisome is the political leverage which Boeing will acquire as a result of the deal. Concentrated economic power yields concentrated political power, which undermines democracy and distorts public policy. As one of two or three major defense companies, Boeing will have undue influence in shaping weapons acquisition policy at the Pentagon, as well as on broader defense policy questions.
As the only U.S. commercial jet manufacturer, Boeing will be positioned to unduly influence industry regulation.
As a manufacturer with especially widespread manufacturing operations, Boeing will be able to exert strong influence over a range of industrial policy issues.
And with its existing status as the largest U.S. exporter enhanced by the merger, Boeing will be positioned to improperly shape U.S. foreign policy on issues relating to China and international trade, among others.
The impetus for the passage of U.S. antitrust laws was a concern with how economic power gives rise to political power. It is hard to imagine a single merger proposal which could better highlight the wisdom of those laws. It is up to the Clinton administration to show they are still vibrant.