Eleanor Fox provides her round-two comments on the draft Merger Guidelines.

To read more from the ProMarket Merger Guidelines Symposium, please see here.

In this Round II of the ProMarket Merger Guidelines Symposium, I try to allay misplaced alarm that the draft Merger Guidelines abandon reason, economics, and consumers. The argument comes in different forms and intensities in different contributions; for example: That the Guidelines disavow consumer welfare and output limitation as the goal and metric for analysis, and that would be “reckless.” That they are inherently hostile to mergers. That they wage a fight against business concentration, and without regard to pro-competitive, pro-consumer effects. That they are political and will destroy the integrity of the Guidelines and the Agencies. One or more of these themes are suggested in the articles of scholars as diverse as Carl Shapiro, Herbert Hovenkamp, and Dennis Carlton.

I take on these arguments in four points. 1) The concern that the Guidelines forsake consumer welfare as goal and output limitation as metric, and this is disastrous. 2) The concern that economics is being demoted. 3) The concern that the Guidelines are hostile to mergers and therefore their implementation will hurt consumers. 4) The concern that the Guidelines are political, tainting the whole enterprise. I conclude by asking: What if I am wrong or naïve not to be upset by the specters raised by the critics?

1) The claim that the draft Guidelines forsake consumer welfare, and that is reckless and disastrous. Yes, the draft Guidelines change the music play-sheet. They step away from the mantra of consumer welfare and from outcome analysis and they return to the language of the statute—competition. In the over-quoted language of Brown Shoe, “It is COMPETITION … that the law protects” (emphasis mine). Not competitors, not incumbents. The significance of the move is two-fold. First, “consumer welfare” has become a chameleon buzzword. Second, the concepts of consumer welfare and output limitation are static and result-oriented, and the draft Guidelines move us back to something much closer to original intent—to preserve a process and environment that is both valuable as process and likely to provide the best results for consumers and the other stakeholders in markets.

As for the chameleon character of “consumer welfare,” Assistant Attorney General Jonathan Kanter is entirely right. The phrase has baggage. It means different things to different people. To Shapiro, it includes the welfare of workers and anyone in the supply chain who is the target of creation or abuse of market power. To Hovenkamp, it means no output limitation.

Federal Trade Commission Chair Lina Khan is exactly right. We have gone down a decades-long path of hinging violations to output-limiting results, and although this may be the economists’ metric for identifying inefficiency, it does not capture the dynamic work of antitrust. Preserving the dynamic of modern markets defies output analysis. The powerful, perfect discriminator can reap its profits without lessening output. The digital platform gatekeepers, while vacuuming up budding competitors, demoting rivals, and controlling gateways, are not dreaming of less output; often more. Competition lifts our gaze.

If mergers soften competition in significant ways, chilling incentives of firms to do better, to be more creative, to anticipate the needs of buyers and suppliers, they raise a red flag of a possible violation. This does not mean that effects are irrelevant. Expected effects are totally relevant. It does not mean that consumers are not important or that harming consumers is fair game. A negative effect on consumers continues to be the most likely result of harm to competition. Consumer harm is still the major harm alleged in antitrust cases. As Kanter has said and the Supreme Court has said through time, competition, like free speech, has a multitude of positive effects—better and more goods and services at lower costs, economic opportunity, resiliency (business is more lithe and adaptable), less inequality, and more democracy. That does not mean that we use inequality or democracy as the metric to decide if a merger is anticompetitive, as Khan herself asserts. But neither do we have to ignore the cluster of values that preservation of competition promotes.

2) The claim that the Guidelines demote economics. Here there are three points to be made. First, the draft Guidelines do demote neoclassical economics. They jettison it. Second, they do not forsake economics. They appear to apply or engage with modern progressive economics built on realistic market assumptions. Third, they reassert the obvious fact that antitrust law is LAW.

Antitrust law is deeply informed by economics. Antitrust economics is a generalized form of economics, generalized both to fit the values of the law and to fit the need for administrability of the law. In many situations, especially mergers, economists are partners, but the law is the senior partner.  Philadelphia National Bank is a good example. If a leading firm in a concentrated market acquires a significant competitor, significantly increasing concentration, in litigation, the plaintiff has made its prima facie case and the burden falls to the merging parties to show that the merger is not anticompetitive. Economists have debated for years whether, on the skeletal facts given, the Philadelphia National Bank presumption is warranted by economics. Some experts say yes, some say no.  In court, it doesn’t matter. There is a sufficiently large chance that that merger will harm competition, the merging parties are the ones with best access to the facts, and, for efficiency in litigation, it is convenient and wise to shift the burden.

The wisdom of a burden shift to the merging parties in appropriate cases is confirmed by modern research and market facts. Increasing evidence shows the high costs of mergers, their all-too-common inefficiencies, the exaggeration of their hope-for efficiencies, and their failure to achieve the efficiencies they expect. Big mergers are prone to fail. High financial rewards from the big transactions go to a handful of executives and advisors regardless of post-merger performance. Quoting lyrics from Taylor Swift, a United States senator described the Ticketmaster/LiveNation merger in the aftermath of the monopoly ticketing debacle as a “proverbial nightmare dressed like a daydream.” So it is with so many big mergers.  While these are not reasons to declare particular mergers anticompetitive, it does seem that the high regard for mergers and the hopes placed in them in the Reagan era forward to make America globally competitive have been deeply undercut by the revealed facts

3) The concern that the Guidelines are hostile to mergers and therefore their implementation will hurt consumers. The Guidelines are aggressive, compared with the conservative state of U.S. antitrust law. For nearly the last half century, we have gone through a period of excessive hospitality to mergers. Whatever Congress meant in passing the Celler-Kefauver Act in 1950, it did not mean hospitality to mergers. While trying to move the goalposts, the draft Guidelines give no hint that consumer-benefiting mergers will be blocked. The Guidelines invite the parties to bring forward evidence of pro-competition, pro-consumer benefits. The Agencies want not just to bring cases; they want to win them; and protecting consumers from loss of competition is both traditional and high on the agenda.

4) The concern that the Guidelines are political. Antitrust law is political economy. As political economy, it has always been political. The most political Merger Guidelines were the Reagan Guidelines of 1982, for those Guidelines incorporated an ideology at war with the legislation; they disavowed the will of Congress to be skeptical of mergers and to stop increasing concentrations in their incipiency. The draft Guidelines, in contrast, would return the merger law to compatibility with Congressional intent, consistently with modern economics.

Much of the charge of politicization is directed toward Khan, who wrote now-famous articles challenging hyper-concentration of business in America and the corporate power of Big Tech. Khan has been labeled “antimarket,” but she presents her views as pro-market and especially pro-open market.  Moreover, personalizing  Khan and highlighting her student scholarship may not be an accurate way to assess how the Guidelines will be applied. The Guidelines are pro-competition; and the FTC and the DOJ are institutions.

But what if I am wrong? What if the draft Guidelines are a way to bring (one view of) Neo-Brandeisian philosophy into the mainstream? To privilege workers and small businesses over consumers? To revive Brown Shoe and Vons Grocery (as applied to their facts) as the paragons of U.S. merger law? To stop concentration and protect inefficient small business, rather than protect competition?

It is hard for me to imagine that this will be the result of Guidelines that speak so clearly of protecting competition from elimination or erosion. An anti-market vision would not be accepted by the courts, which are charged with protecting competition. Such a dramatic shift could not be accomplished without legislative amendment. The critics seem to be equating the shift from “Don’t intervene unless it is output-limiting” to “Intervene to protect competition” with “This is all about protecting inefficient competitors at the expense of consumers.” It just isn’t.

However, precisely because these concerns are lurking in the minds of respected scholars, including some in the vanguard of advocating for more aggressive antitrust, it would be helpful for the Agencies, as they put final touches to the Guidelines, to be more precise in linking the red flags to harms to competition, and to articulate conditions usually necessary to evoke certain concerns—such as a trend toward concentration, and entrenchment. This does not mean that the Agencies should commit to perfectly safe harbors.  As markets evolve, such as digital and data-related, firms find new ways to aggrandize power and suppress competition. Research on ecosystems queries whether large digital conglomerates can manipulate fungible assets and capabilities across markets, to the harm of competition and consumers. Competition agencies should be in the vanguard of protecting markets from new forms of restraint. In the built-in tension between predictability for business and flexibility of law to adjust to modern times, the need for flexibility to adjust to changing market realities should not be second best.

The critics make some points that can easily be addressed. But the claim that the draft Guidelines abandon reason, economics and consumers is wrong. To the contrary, the draft Guidelines have the potential to lead us out of a reductionist cul-de-sac, and to hitch our gaze to a dynamic perspective on the job of a modern merger law.

Author Disclosure: I do not have any conflicts. I am not working for any parties interested in the guidelines.

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