deserves serious attention and probably legislative initiatives, but Congress should address them with the clear recognition that it is setting policy outside the traditional analytical framework of antitrust law, which concentrates on promoting competition within particular markets.

Antitrust has been given a bum rap. There is almost no evidence that enforcing the antitrust laws has been inconsistent with a healthy economy, international competitiveness, and full employment, and there is plenty of evidence that shows vigorous competition is good for our economic health. The current

administration has given us the worst of both worlds, however. On the one hand, antitrust enforcement has dwindled, an "anything goes" climate has encouraged massive acquisitions, and traditional antitrust standards have been attacked by the antitrust enforcers themselves. At the same time, this administration has done nothing to propose or encourage

constructive approaches to the problems of business combinations which fall outside of traditional antitrust concerns.

Failure to Release Adequate Information

The legal

In releasing staff memoranda concerning the GM/Toyota joint venture to the public, major portions were expurgated. standard governing the release of information to the public adopted by the majority of the Commission in this case has the practical effect of prohibiting us from releasing, in the context of a consent agreement proceeding, essentially all material which the submitting companies do not want to be made public. In other

words, the companies, not the Commission, will control the flow of information to the public, no matter whether the information is highly sensitive or not, and not matter how central it is in explaining the Commission's action in a particular case.

This sweeping confidentially standard is not the standard stated in Chairman Miller's statement of January 25 accompanying the release of some GM/Toyota materials, in which he said: "The information required by law to be deleted was confined to only the most competitively sensitive data associated with the joint venture." In fact, the position followed by the General Counsel in expurgating staff documents and stated in the Commission's denial of Chrysler's petition for release of information is that we have no discretion to release any materials: "obtained in a law enforcement investigation either by compulsory process, or voluntarily in place of such process that is marked confidential, except by consent of the submitter."

A good example of the breadth of the majority's standard is the expurgation from a staff memorandum of a discussion about past questionable exchanges of sensitive information between GM and Toyota in planning the joint venture. I was advised by the General Counsel to delete this reference from my public statement about the consent agreement as well. While this information is useful to the public in understanding how potentially anticompetitive exchanges of information can easily take place in a joint venture setting, even if companies exercise good faith, it is inconceivable how revealing this information can cause commercial, competitive harm to the companies. Such disclosures

may be embarrassing to the companies, but preventing embarrassment is not within our legal mandate.

Even if the law were interpreted to limit our discretion, the General Counsel has acknowledged, the Commission is always free to negotiate as part of a consent agreement the release of information to as enable the public to make an informal

as

judgment. But in this case, and Toyota to withhold from public scrutiny the pricing formula which is at the heart of the competitive problems from this joint venture. Now we have the ironic twist that General Motors,

our staff acceded to a request by GM

acting voluntarily, released the entire Memorandum of

Understanding in its litigation with Chrysler, making public what the Commission has fought so hard to keep confidential.

Mr. FLORIO. Thank you very much.
Mrs. Bailey.

STATEMENT OF PATRICIA P. BAILEY

Ms. BAILEY. I am accompanied today by my attorney-adviser in this matter, Mary Lou Steptoe. I appreciate your understanding and that expressed by the members of the committee that the Commission, Mr. Pertschuk and I, are testifying today with two sensitivities in mind.

One is, of course, that while we have all reached initial conclusions regarding the legality of the GM/Toyota joint venture, as a technical procedural matter the final decision is still ahead of us.

The other is that due to statutory restraints with respect to the nondisclosure of confidential business information, it may not be possible to provide as clearly as would otherwise be indicated the specific information on which our conclusions are based.

With those sensitivities in mind, I am pleased to accept the subcommittee's invitation to testify at these hearings.

As you know, I voted against acceptance of the proposed consent agreement with General Motors and Toyota because I do not believe it cures the antitrust infirmities of their joint venture.

The reasons for my position are set forth in my dissenting statement of December 22, 1983, which is attached.

In brief, my view is that this production venture between competitors more nearly approximates a garden-variety merger than the output-enhancing research and development joint ventures which receive favorable analysis under the law.

It cannot be ignored, therefore, that this is a combination of the world's first and third largest car manufacturers in a concentrated market which is unlikely to become less concentrated in the foreseeable future.

Indeed, it is predictable, I think, that the market will become more concentrated as other car companies follow the GM/Toyota precedent and team up to try to match the power of this joint venture.

In particular, my concerns are that this quasi-merger facilitates exchange of competitively sensitive information between the two companies, and is very likely to weaken price competition between them, especially but not limited to their subcompact cars.

The proposed consent agreement does not, and in my view cannot-as to some aspects-cure these problems. I am especially concerned about information exchanges between GM and Toyota. Granted, the consent requires that the two companies cannot talk directly about pricing, design and technology features; but each company can talk to the joint venture and the joint venture can talk to each, a link which brings them very close indeed.

Toyota supplies the joint venture with parts and know-how for production of a car to meet the specific needs of just one customer, General Motors.

Even assuming the best goodwill in the world to avoid communication, how can the companies not learn far more about each other's capabilities and plans via the joint venture than they would otherwise?

The incentive to "get closer" is inherent in the structure of the joint venture. Nothing more clearly shows this than the provisos in the proposed consent which undermine all the carefully drafted bounds on data exchanges.

That is not necessarily a criticism of the consent agreement, but a recognition that it is not possible to cure some of these problems. In part IV and part V of the consent agreement, you can see, on the one hand, the companies are ordered not to discuss between themselves or with the joint venture any nonpublic information concerning new automobiles or the parts of those automobiles, except as necessary to do business with the joint venture.

And it seems to me those provisos undermine totally the effort that is being made in the consent agreement.

It is not possible for the Federal Trade Commission to station a representative at the elbow of every GM or Toyota engineer or marketing representaive who will be contributing to the joint venture.

Of necessity, ad hoc determinations will be made constantly as to what is a legitimate, permissible topic of conversation. The fear is that the collective effort of collegial openness will be much a closer coordination of GM and Toyota car design and marketing.

The likelihood of information exchanges is not a theoretical possibility, it is a reality. In the course of setting up the joint venture Toyota supplied GM-more than once-with detailed product information on design and price.

Although I am advised that the confidentiality provisions of the FTC Act prevent my giving details on these exchanges, I can state that they were characterized as "substantial" and "troubling" by our staff, and played no little part in my preliminary conclusion that the joint venture will reduce competition between GM and Toyota.

A second problem with the consent, if not the joint venture itself, concerns pricing of the car with General Motors will buy. In a laudable effort to avoid direct price negotiations, the parties have agreed to a transfer price formula which supposedly sets the price independently of the companies' input. It does not do so. The formula works as follows.

The price which the joint venture will charge GM for the car is calculated by a weighted average of wholesale prices of competitive small cars.

Toyota's Corolla is given a special weight of 30 percent in the formula. Simply between GM and Toyota this formula reduces price competition, because any price cuts Toyota gives its dealers must be passed on to GM, with a corresponding reduction in Toyota's joint venture profits.

Consequently, Toyota's incentives are to raise the Corolla price, knowing that such a price rise is incorporated into the cost of the joint venture car to GM; and knowing, moreover, that both it and GM are the industry price leaders, so that competitors are likely to match the higher prices.

The competitors' price hikes in turn are reflected in the transfer price formula, and so, the formula assures an ascending spiral of lockstep pricing, although without explicit cooperation or collusion.

I do not doubt that it would be most valuable to GM and possibly the American consumer for GM to be able to emulate Japanese low-cost automobile production. The question is whether a joint venture is needed to learn the Japanese techniques, and more importantly, whether a joint venture with Toyota is necessary.

As to the first question, efficiencies are easy to allege but notoriously difficult to measure, and hence are seldom given much weight when evaluating the competitive effect of combinations of rivals.

Management efficiencies-as opposed, say, to economies of scale in the production process-are too nebulous even to be mentioned by the Department of Justice Merger Guides as being susceptible of proof.

In my talks with GM representatives, no special Japanese efficiencies were described which were not already common knowledge in the industry. For example, the fact that labor costs are lower when job classifications are decreased; and that workers are more efficient when the assembly line is positioned so that they need not work from a crouching or stooped position.

To the extent that there is a Japanese mystique, however, it appears to be common to all car manufacturers in that country. Toyota, in other words, does not hold the patent to efficient car production.

This being so, if GM really must have a joint venture partner in order to learn the secrets of the Orient, why must it have only the leading importer, the company which has been, along with GM, the price leader in the industry?

It seems to me that approval of this joint venture lets a dubious and insubstantial efficiency outweigh virtual certainties of increased industry concentration, exchanges of competitively sensitive information and decreased vigor of price competition.