Intel, Antitrust and Stock Price Volatility

The Federal Trade Commission (FTC) under the Obama administration is stepping up antitrust activities.  In the past, aggressive antitrust actions have been associated with declining stock values, suggesting that current efforts are ill timed.  Justin Bloom of Bloomberg describes the action against Intel in, "Intel Case May Signal Increased Antitrust Enforcement (Update2)."

Dec. 17 (Bloomberg) -- The government’s case against Intel Corp., accusing the world’s largest computer-chip maker of using monopoly power to stifle competition, may signal that antitrust enforcers under the Obama administration will be more aggressive than their predecessors, lawyers said.

The Federal Trade Commission, led by Jon Leibowitz, who was elevated to serve as the panel’s chairman by President Barack Obama, yesterday filed an administrative complaint saying Intel tried to block “superior” products by rivals and hurt consumer choice.

This is a bipartisan action having roots in the Bush administration.

Commissioners are nominated by the president, serve seven- year terms, and no more than three people on the five-member panel can be of the same political party.

The Justice Department, which isn’t involved in the Intel case, in May revoked a Bush administration antitrust policy that it called an impediment to the government’s ability to fight anticompetitive conduct by dominant companies.

Christine Varney, who heads the department’s antitrust division, said in a May speech that the Obama administration “will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.”

Varney’s remarks, the Intel case and comments by Leibowitz suggest more enforcement, said Bernard A. Nigro Jr., a lawyer with Fried, Frank, Harris, Shriver & Jacobson LLP in Washington. He previously served as deputy director for the competition bureau of the FTC.

Intel interprets events differently.

Intel said that it has competed “fairly and lawfully” and that its actions have benefited consumers. The microprocessor industry is competitive and prices have declined at a faster rate than in any other industry, the company said in a statement. In settlement talks with Intel, the government asked for “unprecedented remedies” that would make it “impossible for Intel to conduct business,” general counsel Doug Melamed said.

It is hard to envision an industry that has innovated as rapidly or seen such consistent price declines. 

George Bittlingmayer describes the impact of antitrust enforcement in the 1920's and 1930's in, "The 1920'S Boom, The Great Crash and After."  The stock market crash began on October 23, 1929 with a 6% decline, while Warner Brothers and Paramount awaited merger approval from the FTC.  It is likely that the participants knew that the deal would not be approved by the Attorney General on October 23.  One week later, the stock market had declined by 30%.  Bittlingmayer finds hat stock price movements are strongly and negatively correlated with antitrust activity. 

Attorney General Mitchell sent a clearer signal on Friday, October 25 in a dinner speech to the American Bar Association. He promised to enforce the antitrust laws as they were written; he characterized "the machinery of some trade associations [as] dangerously near pricefixing;" he revealed that the Department had not approved a single merger since the new administration took office in March, which implied a clear break with Coolidge-era practice; and he reserved the right to file suit against any merger not explicitly approved.3

Lawsuits followed. Mitchell filed two cases against publicly traded movie producers on November 27. One involved Fox's acquisition of a controlling share of Loew's, the other Warner Brother's acquisition of a controlling interest in First National Picture. The merger attacked in the second case was itself a response to antitrust objections...

Stock market volatility also lowers consumption. 

The ups and downs of antitrust tell a simple and unified story for the twenties boom, the Great Crash and some of the volatility that followed. The identification of a possible cause of stock market volatility also enriches Christina Romer's (1990) finding that greater stock market volatility lowers consumer purchases, thus explaining the 1930 slump. Other potentially fertile ground remains untilled. The unstable antitrust politics at the end of World War I, Supreme Court decisions of the twenties and thirties, the changing fortunes of the FTC at the hands of Congress and the courts, the 1933 National Industrial Recovery Act, and the monopoly policies and investigations of the late 1930's should provide additional insight into the effects of antitrust on financial markets.