E C O N O M I C R E P O R T O F T H E P R E S I D E N T

Maintaining CompetitionAnother way in which government policy can encourage economic growth isthrough reducing barriers to competition and entry rather than imposingrestrictions that in effect protect incumbent firms. For example, by makingmore of the electromagnetic spectrum available for wireless services, asdiscussed above, the Federal Government has enabled a number of new firms toenter the market for these services. The prices that consumers pay forwireless phone service have dropped, on average, as a result. In designing thespectrum auctions, the Federal Communications Commission was careful tolimit the ability of existing cellular incumbents to acquire the lion’s share ofspectrum available, and this laid the necessary foundation for more competitionbetween competing wireless networks. Similarly, the Telecommunications Act of1996 removed barriers to entry across telecommunications markets, and it setconditions for regional Bell operating companies to enter long-distance marketsafter making changes to permit the entry of new competitors for local telephoneservices. In December 1999, the commission found that one company had metthose conditions in New York State and allowed it to begin offering longdistanceservice in New York. Companies in other States are expected to qualifyin the future as more local markets are opened to competition for both businessand residential customers.Vigorously enforcing the Nation’s antitrust laws is another important elementof a policy that promotes competition. As noted above, concerns about thecompetitive implications of mergers are not new, but the recent wave of largemergers has highlighted this aspect of antitrust policy. One reason for thismerger activity is that firms are seeking to achieve efficiencies and become morecompetitive in the global marketplace. The vast majority of these mergers poseno competitive concern because they do not combine two significant competitorsin a market that would raise a concern about diminished competition. Inother cases, however, the antitrust agencies at the Department of Justice and theFederal Trade Commission have opposed elements of planned mergers thatwould have diminished competition in several cases, including gasoline marketingand refining, grain distribution, avionics, waste disposal, banking services,and mobile telephony. In these cases the antitrust agencies have opposed mergersbecause of their potentially adverse impact on consumers and have soughtdivestitures that would preserve competition.In analyzing mergers and other potentially anticompetitive conduct, antitrustagencies increasingly must consider the effects that arise not only from traditionaleconomies of scale in production, but also from the effects of market powercreated by network effects. For some products—for example, some types of basiccomputer software and hardware—having a large installed base of users creates ade facto standard both for those users and for product developers, who must usethat standard to create new, complementary products. Users accustomed to126 | Economic Report of the President