Now, that's really the last time-until now-that we heard of that idea from the Department of Justice. I'm wondering whether the Task Group recommendations will suffer the same fate. Mr. BAKER. That's a question I obviously can't answer for you. Mr. SEIBERLING [presiding]. Well, thank you, gentlemen. Sorry we ran a little over our expected time of termination, but we appreciate very much your appearing and helping enlighten us on this subject. It's a lot bigger than one might suppose with superficial examination. The hearing of the Subcommittee on Monopolies is hereby adjourned. [Whereupon, at 12:40 p.m., the hearing was adjourned.] APPENDIXES APPENDIX 1 Hon. DONALD I. BAKER, APRIL 27, 1977. Aistant Attorney General, Antitrust Division, U.S. Department of Justice, Washington, D.C. DEAR MR. BAKER: Again, I wish to thank you for your testimony on antitrust exemptions and immunities and for the Department of Justice studies which were Submitted for the record. Due to the shortness of time, the Subcommittee was unable to ask all the gestions it intended to ask the Antitrust Division. We are, therefore, addressing the following questions to you: 1. What is the total loss to consumers from the exemptions the Antitrust Division studied? For example, what does the Division estimate to be the cost of Capper-Volstead exemption, Federal Milk Marketing Orders, ocean shipping and the McCarran-Ferguson Act? 2 When the Securities and Exchange Commission was considering the implementation of competitive brokerage rates, there were predictions that "ruinous mpetition" would ensue and the consumer would be worse off after de-regulaon. Has the Antitrust Division conducted any study of the securities industry see what effect competitive brokerage rates has had in that industry? Does e deregulation experience of the securities industry, and the arguments raised support price-fixing in that industry, have any application to other regulated dustries, and if so, how? 3. Please describe in greater detail the jurisdictions of the Special Regulated Industries section, the Regulated Industry section (and similar sections) of the Antitrust Division. How many staff are assigned to each section? What are their duties? What is e staff and budget for these sections over the last four years? What have been accomplishments of these sections in terms of litigated court decisions, cy decisions, consent decrees or other settlements? What do you expect these tions to contribute to the Antitrust Division's overall enforcement activity in next two years? Why were no antitrust challenges brought against cooperative mergers from 1972? What cooperative mergers did your agency investigate during this d? What were the dispositions of those investigations, and the reasons refor? Please respond to Congresswoman Jordan's request for the estimates of conr loss from regulation and antitrust exemptions in the transportation and rance industries. You testified you did not have those numbers available but Paid try to generate such an estimate. If no estimate is possible, please indicate and describe the nature of the conduct which is exempted from competition. Following up Congressman Hughes' inquiry, what recommendations does Antitrust Division have to improve the competitive performance of crude oil product pipelines? Specifically, does the Antitrust Division favor continued ulation of pipelines, or pipeline divestiture? What are the costs and benefits of proposal? Given the Antitrust Division's admission that its Pipeline Consent (United States v. Atlantic Refining Co.) and I.C.C. regulation is inadete, what does the Antitrust Division plan to do or recommend? What portion of the Antitrust Division's budget is currently devoted to regued industries? And over the last four years: What percentage of the Regulated istry and Special Regulated Industry sections (and other similar sections) et is spent for court litigation as opposed to appearances before regulatory cies? What antitrust exemptions does the Department of Justice propose be remined, eliminated or modified? (53) 9. In response to Mr. Seiberling's question, please report on the staffing of Antitrust Division personnel on its Energy Task Force. Specifically, what portion of the Division's resources are devoted to energy-related matters? What have been the Department's accomplishments in this area? Are the Department's energy matters centralized in the Division or are they scattered among different sections of the Antitrust Division? 10. In responding to my question on the advisability of including a "sunset" provision in exemptive legislation, you stated you were in favor of congressional review of exemptions. This of course, Congress can do at any time. I should be interested in learning whether, as a general principle, you would favor including a "sunset" provision within any such legislation. Given the inevitable press of time, we would appreciate having your response as soon as possible. We are most grateful for your continued cooperation. Sincerely, PETER W. RODINO, Jr., Chairman. U.S. DEPARTMENT OF JUSTICE, Hon. PETER W. RODINO, Jr., Chairman, Committee on the Judiciary, DEAR MR. CHAIRMAN: This is in response to your letter of April 27, 1977, in which you request the Department to respond to questions concerning antitrust exemptions and immunities, the subject of the Department's testimony before the Subcommittee on Monopolies and Commercial Law on March 29, 1977. I apol ogize for the delay in responding to your inquiry; we have tried to answer each of your inquiries as fully as possible. For purposes of clarity, I will respond separately to each of the ten issues raised in your letter. 1. Economic impact of the antitrust exemptions You inquire as to the total loss to consumers resulting from the antitrust exemptions studied by the Task Group. As you know, the Department undertook to examine a broad range of antitrust exemptions. Unfortunately, there is very little definitive data on the loss to con sumers resulting from the substitution of government regulation for market controls. In some areas, the data is simply unavailable. For example, in the area of insurance, the wide variation among the states in the regulation of rates, classes of risks, marketing, residual markets, and solvency (as well as the variation among the states as to industry reliance on private rate bureaus) would make any such nationwide evaluation extremely difficult. In other areas, the Depar ment has examined only limited aspects of federal regulation, such as in agr culture where its study was confined to milk regulation, Nevertheless, we outline below the information available to us which relates to the "social" and economic cost of regulation with respect to milk marketi ocean shipping, and surface and air transportation. a. Milk regulation Studies have been conducted estimating the costs of monopoly power exe cised by milk cooperatives. This cost cannot, however, be attributed solely to the Capper-Volstead Act. Cooperative monopolization in milk marketing results fr a combination of the federal milk marketing legislation and the Act. Further, studies do not show net costs: the benefits, which are particularly pertinen reviewing cooperative conduct, cannot be quantified. The studies reviewed by the Department analyze two types of social impacts dead-weight social loss, and transfer payments. A dead-weight social loss is th net value of goods and services wasted or not produced because of deviat from ideal competitive market performance. It represents an unequivocal of assets to society. Transfer payments, on the other hand. refer simply to distribution of wealth. Money is transferred from one identifiable economic gr to another as a result of deviations from a competitive market norm. We have summarized in Attachment A the findings of various research categorized by type of regulation and type of social cost. The various costs not strictly additive. b. Shipping regulation The total cost to consumers of ocean shipping regulation is impossible to determine with any degree of accuracy. However, since the ocean shipping conferences exert monopoly power, they can exercise the power to raise rates above the competitive level. The evidence on inter-commodities price discrimination and the frequency and magnitude of price increases suggests the conference rates are substantially above the competitive norm. The breadth of this differential between competitive rates and conference rates undoubtedly varies from trade to trade, since different conferences have varying degrees of monopoly power and different trades have varying demand characteristics which the conferences can exploit. The higher the degree of monopoly power exercised by the conferences, the higher this differential is likely to be. On study has concluded that the fio. vessel expense portion of the freight rate (i.e., the freight rate less adininistrative expenses and port expenses) was approximately three times what it would be under an efficient system.1 The freight rate was estimated to be 45 percent higher than necessary. 1 There is also a substantial cost incurred by society from the misallocation of resources caused by the regulatory oversupply cycle that operates in the ocean Shipping industry. This "cycle" is characterized by persistent over-capacity and service extras" rivalry. This occurs because, in the absence of price competiBon, and especially given a situation of oversupply, it will pay each carrier to increase its utilization: to do so, carriers will offer service improvements without regard to what other shippers would pay for them if given a choice. Finally, the regulated conference system may also have the effect of reducing Ferid trade. Although conferences attempt to price in the inelastic portion of demand for shipping each commodity, i.e., in the range where increases in price Fill produce relatively small reductions in quantity demanded, the way in which te commodities are treated could restrain the initiation of trade in certain Commodities or inhibit the movement of certain commodities. Typically, a new mmodity must move for a time with the general cargo rate, which is a very high rate. After the conference has had some experience with the commodity, the lume of it which moves, and the demand for it in the importing country, then negotiates a lower rate for the exporter. Obviously, such a system will disrage the movement of any commodity which cannot overcome the impact of the general cargo rate for a period of time. Further, although conferences attempt to price in the inelastic portion of deCand, the possibility of errors may be increased by the conference ratemaking press, which generally involves a concensus decision, or at least a substantial alancing of interests. This means that rates will be at least high enough to be mfortable for higher cost carriers. e. Trucking and other surface transportation regulation The authority has estimated that the waste generated by regulation in comcarrier trucking in 1968 was between $1.4 billion and $1.9 billion and that igure in 1976 may have exceeded $2 billion. He estimates that rates would at least 20 percent lower without regulation. Moore also estimates that economic losses in 1968 from ICC regulation of ks, rails, and water carriers fall somewhere between $4 billion and $9 billion. He concludes that "with many of the figures chosen on the basis of conservative emptions, it would not be unreasonable to expect that elimination of regulawould result in saving to the economy, in terms of resources, as high as $10 Lion a year." 3 d. Air transportation regulation In 1977 the Comptroller General of the United States concluded as follows respect to the cost of air transportation regulation:*1 Our study offers reliable evidence that airlines could have profitably operated at a lower cost per passenger during the 6 years from 1969 to 1974 resulting in lower fares and therefore savings to domestic air travelers on the order of $1.4 to $1.8 billion a year. Deanney, Livanos & Stewart, Conference Ratemaking and the West Coast of South ric, MIT Commodity Transportation and Economic Development Laboratory Technical t72-1, at 67-69 (1972). Thomas Gale Moore, Trucking Regulation Lessons From Europe, AEI-Hoover Policy (1976), at 145. Thomas Gale Moore, Freight Transportation Regulation, Surface Freight and the tate Commerce Commission, AEI Evaluative Studies (1972), at 81. Report to the Congress by the Comptroller General of the United States (1977). at 38. |