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. Finally, I should note that, under the consent, this supposedly neutral formula can be set aside by the companies in favor of direct price negotiations anytime the transfer price yields a selling price which is at significant variance with current market conditions. 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 evauating the competitive effect of combinations of rivals. Management efficiencies (as opposed, 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 say, 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. In my opinion, the very real anticompetitive risks of this joint venture outweigh its theoretical benefits. DISSENTING STATEMENT OF COMMISSIONER PATRICIA P. BAILEY DECEMBER 22, 1983 venture. The Commission majority has today voted to accept a consent agreement with the General Motors and Toyota Motor Corporation which does not cure the antitrust infirmities of their proposed joint venture. I have, therefore, dissented from that decision. I am acutely aware of the arguments favoring this joint Certainly any knowledgeable observer would agree that American car companies, facing stiff foreign competition in the United States market, need to improve production techniques in order to strengthen their competitive positions into the future. The decision for this Commission, however, is whether a joint venture such as that proposed by these companies is sanctioned by the nation's antitrust laws. I do not believe by any stretch of the imagination that it is. Whether it should be is not for me That argument should be posed in another forum. to say. In any event, to claim that the consent agreement accepted today, which allows a partial combination of the first and third largest car companies in the world, solves any perceived antitrust problems with the venture, is simply, in my view, not the case. Indeed, both companies have acknowledged publicly that the consent merely restates the essential conditions of their original agreement. */ The reasons for my decision in this matter are summarized below. Effect of precedent There should be no mistake about the effect of the Commission's decision today. The principles of legality for this joint venture cannot be limited to one hermetically sealed experiment in Freemont, This joint venture is between the largest U.S. car California. producer and the largest Japanese car producer both price-leaders for their makes of cars; thus, any similarly-structured joint venture between any other members of the industry must be sanctioned. How could we deny to other companies what we have authorized for the industry giants? In effect, this is rule-making for the industry. It is predictable that several features of this point venture will result in a reduction of competitive vigor betw an GM and Toyota. Concern about that should deepen when the strong likelihood that these features will be copied in "me-too" joint ventures between the remaining domestic car companies and foreign partners is considered. This joint venture, then, must be seen as a prototype for the industry that may well produce changes which are quantitatively more significant than those caused by it alone. The auto See, e.g., New York Times, December 21, 1983, p. Dl "If it gives them the FTC] some comfort and seals the deal, then it's OK." (quoting General Motors Chairman Roger Smith); Washington Post, December 21, 1983, p. D1 "The precise terms of the order likely to include no more than a written agreement to abide by three elements of the venture that have already been publicly announced." (According to Toyota's U.S. Counsel.) are industry is clearly undergoing a concentration trend; the question is whether the Federal Trade Commission should accelerate that process by an action which will almost inevitably touch off a reactive pattern of strategic pairing between car manufacturers. That is especially a troubling concern since the purpose behind these cooperative ventures would not be the creation of a new competitor, but rather a decrease in the overall number of market participants, leading to increased likelihood of tacit, if not actual, collusion. */ Nature of the transaction Some joint ventures can be highly pro-competitive, although this is not likely to be one of them. Particularly prized are ventures where the combination of the parent firms' resources achieves what neither can manage alone: an increase in pure research, a technological breakthrough, product innovation, or entry into a new market. **/ This joint venture has none of those output-enhancing features. Manifestly, neither GM nor Toyota is a new entrant into the automobile market. The car to be produced by this joint venture likewise is nothing new: it is a derivative of Toyota's Corolla. The design differences between the two models are "modest" and beneath the sheet metal the cars will be "essentially identical." (BC staff memo, I, 10) On its face the GM/Toyota arrangement falls into the most suspect category of joint ventures: */ **/ U. S. Department of Justice Antitrust Guide Concerning Research Joint Ventures, 466 CCH Trade Reg. Reports, 35 (December 1, 1980); Brodley, Joint Ventures and Antitrust Policy, 95 Harv. L. Rev., 1523 (1982); Pitofsky, op. cit. |