Matt Stoller lays out the case for the new draft Merger Guidelines, arguing that they incorporate new lessons regarding technology and business practices, while also learning from past mistakes.
“The purpose of the proposed bill, H. R. 2734, is to limit future increases in the level of economic concentration resulting from corporate mergers and acquisitions.” – Senate Judiciary Report on the Celler-Kefauver updates to the Clayton Act, 1949
To understand the point of the new draft Merger Guidelines, one only needs to look at the current crisis in the television and movie business. Hollywood has traditionally been an iconic and profitable industry, producing some of the best entertainment in the world. Today, it is beset by strikes and creative bankruptcy in the form of an endless number of Marvel and Star Wars movies. And prices are going up in a phenomenon the Wall Street Journal calls “streamflation.”
Why is Hollywood struggling? The Writer’s Guild of America West, a union representing screenwriters, just released a report chalking industry problems to the growth of exclusionary “walled gardens” in the streaming business. “Disney, Amazon, and Netflix,” wrote the union, “have increased market share and leverage through acquisitions, wielding their control of related markets, and underpricing their services to achieve dominance.” Linking their problems to our country’s lax merger enforcement, many WGA members are commenting in the merger guideline docket as part of the public comment period because screenwriters, like many others in our society, have direct experience losing bargaining power following mergers.
These writers aren’t alone in experiencing a modern merger-driven monopoly crisis based on ignoring vertical harms and the perils of concentration. Just talk to any Taylor Swift fan about Ticketmaster/Live Nation. Or ask a cancer patient or doctor trying to get what should be cheap life-saving drugs that are somehow in shortage. Or read the new resolution on vertical consolidation passed by the traditionally conservative American Medical Association, the doctor’s lobby, whose incoming president has made addressing hospital consolidation a priority. And this is not to mention that we are just 15 years removed from a financial crisis fostered by vertically integrated “Too Big to Fail” banks. In almost all these cases, the existing Merger Guidelines encouraged enforcers to either waive through the mergers and consolidation or look approvingly on them, demonstrating how out of touch the previous Guidelines are with everyday reality.
In 2017, the Stigler Center arranged a new annual conference around the subject of antitrust. The 2017 conference asked whether there’s a monopoly crisis in America. This question was an empirical one. As we discuss the Merger Guidelines today, we should continue in this spirit, and center the discussion with learning how the economy now works. To that end, it’s important to draw in feedback from normal people who experience the economic order that antitrust lawyers and economists muse on from a theoretical perspective.
There is broad agreement among all participants in this forum that there was a wholesale change in antitrust enforcement in the 1980s towards a more tolerant posture for mergers. “Vertical integration creates efficiencies for consumers,” wrote Herb Hovenkamp in his 2023 treatise, which is frequently quoted by judges. The pro-merger 2010 Guidelines, shepherded to completion by consultant Carl Shapiro, lauded certain mergers. “A primary benefit of mergers to the economy,” they read, “is their potential to generate significant efficiencies and thus enhance the merged firm’s ability and incentive to compete, which may result in lower prices, improved quality, enhanced service, or new products.”
What are the results of this long-standing lax approach? Well for one thing, concentration is now a systemic feature of the American economy. Firms in the United States are larger, older, and more profitable, with the number of public corporations falling from over 7,000 in the 1990s to less than 3,500 today, largely due to mergers. Successive merger waves have fostered an economic order with less resiliency, less liberty, and more concentration. (Some industry examples, aside from Hollywood, include: internet search, gold mines, academic library services, lacrosse leagues and teams, ammunition, mail sorting software, tactical helmets, street sweeping, and video games.)
The problems of monopolization are as common in our top-performing firms as anywhere else. Here’s Praveen Seshadri, an ex-Googler who sold his startup to the company, writing about how the search giant’s operational capacity is collapsing: “Google has 175,000+ capable and well-compensated employees who get very little done,” he wrote, because they are trapped in a bureaucratic “maze of approvals.” This sloth isn’t despite the firm’s market power, but because of it. It is a “natural consequence of having a money-printing machine called ‘Ads’ that has kept growing relentlessly every year, hiding all other sins.” Indeed, looking at the bleeding edge of technology, though Google helped invent generative AI, the technology was deployed by a much smaller firm, OpenAI. Google’s market power is a result of hundreds of acquisitions over many years, not one of which was challenged under the old Merger Guidelines.
Today, capital allocators explicitly base their investment strategies on monopolization. Warren Buffett targets companies with “moats,” meaning competitive barriers to entry. But newer investors, like those at Equal Ventures, say it outright, discussing how they evaluate a firm’s “moat trajectory” to assess “the ability to monopolize a segment of the value chain” and seeking industries that “lends itself well to monopolization, rather than many players.” It should be embarrassing to status quo defenders that investors publicly seek investment opportunities by citing as their investment thesis firms who violate the statutory text of the antitrust laws.
It would be one thing if Carl Shapiro, Herb Hovenkamp, Josh Wright, Dennis Carlton, and other defenders of the status quo were faithfully interpreting the law and the legislative history of it, but they aren’t. Passed in 1950, in the shadow of fascism, the intent of the amended version of the Clayton Act is clear, with both the House and Senate reports noting that its main point was to prevent the high level of corporate concentration and preserve “small business as an important competitive factor in the American economy.”
At the time, antitrust enforcers and courts were taking apart authoritarian systems, from the global cartels that aided Nazi Germany to the unfair exploitation of patent rights by firms like AT&T, which tried to stop the commercialization of the transistor, to the vertically integrated Hollywood studio system. Those who think Congress feared high prices and not exclusionary conduct have it backwards. Enforcers and courts centered legal prohibitions on exclusionary conduct, and low prices were a consequence of that focus. Indeed, the Temporary National Economic Committee, cited often in legislative history, defined capitalism itself as a system characterized by among other assumptions the “dignity of the individual” and a “rough equality in bargaining power,” not as a system characterized by any particular price level.
The new Guidelines are an attempt to restore the law and to incorporate new learning about digital markets and innovative business methods into enforcement. They include attempts to address product market extensions and entrenchment, which is common today in data-heavy markets. But more than that, the Guidelines are also based on extensive listening sessions with members of the public and thousands of comments from ordinary people who wrote in with their personal experience with mergers. This is significantly different from the mere 32 comments received in 2010, all of which were crafted by lobbyists or antitrust insiders.
So why are these new Guidelines , which conservative law professor Todd Zywicki called “moderate” at a Federalist Society event, so controversial? The answer is we are dealing with the fallout from a sophisticated political campaign organized in the 1970s that created a false legal and historical tradition upon which current practice operates.
In that era, antitrust lawyer Robert Bork, joined by liberal allies such as Stephen Breyer, popularized a concept called consumer welfare. Bork’s goal had nothing to do with high prices. It was to flip presumptions of mid-20th century antitrust law, which he saw as a bastion of discredited “populistic” ideology. In 2013, Bork’s ally, professor George Priest, wrote a paper laying it out. Bork, Priest said, used a historical narrative centering efficiency that “cannot realistically be defended,” not due to an error, but as Priest put it, for “strategic reasons.” Bork sought to repurpose the point of the law away from blocking concentration and promoting small business and towards efficiency and price theory. This is, not coincidentally, how Hovenkamp framed his defense of the old Guidelines.
Beyond the power of ideas, there was a strategy to circumvent Congress. My colleague Erik Peinert unearthed documents from the Reagan Library showing a campaign to rewrite merger law through administrative means by revising the guidelines and refusing to bring cases. It worked. The 1982 Merger Guidelines are today lauded as historic. Reagan also nominated hundreds of judges favorable to Bork’s thinking, and as Eleanor Fox noted, these men effectuated the shift of having the 1982 guidelines accepted by the courts. In other words, agree or not, consumer welfare, and the interpretative framework Bork fostered, isn’t in statute or legislative history, but was made up decades later and implemented without Congress.
One intellectual defense of the Bork revolution is that antitrust is flexible, and so judges were reasonable in seeking to learn from new thinking of economics in the 1970s. I don’t find that persuasive, but if it is true that antitrust law should be flexible, then it should matter to antitrust practitioners that the overwhelming amount of evidence, from both ordinary people, business consultants, and economists, suggests that we are living in a monopoly crisis: a more authoritarian world in which a small number of people get to make key commercial and political decisions.
Shouldn’t we learn from our mistakes? Or is the flexibility of antitrust merely a one-way ratchet for more consolidation? The answer from the antitrust Agencies, fortunately, is that we should learn. The new draft Merger Guidelines are designed to incorporate this new learning, while being faithful to the flexibility and precedent embedded in our antitrust regime. They are a welcome breath of fresh air.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.