Cory S. Capps and Leemore Dafny provide their round-two comments on the draft Merger Guidelines.

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

Cory: By my subjective count, among the Round One submissions to ProMarket’s Merger Guidelines Symposium, four are mostly or strongly favorable towards the draft Merger Guidelines, two are mostly negative, and four are mixed (I include us in the third group). Among the negatives, the common theme is that the draft Merger Guidelines overly emphasize law at the expense of economics and rely on unjustified and potentially counterproductive assumptions about concentration and competition. The mixed takes vary, but the authors seem to generally agree with the goals of the new Guidelines but question whether, as written, they are likely to advance those goals. The favorable takes observe that the new Guidelines would move merger enforcement towards its status prior to the incorporation of the Chicago School into merger analysis and the Reagan-era 1982 Merger Guidelines, and that would be a good outcome.

My quick takes. First, I share the concern of the mixed group that the draft Merger Guidelines may not achieve their objectives and could embed some potentially counterproductive guidance. Second, the negative camp is probably, in practice, overly negative because even if flawed, the new Guidelines are unlikely to undermine merger enforcement relative to the post-2010 Merger Guidelines status quo. If these critics are correct, I suspect courts will just ignore the new Guidelines. Third, the favorable camp seems overly eager for a restoration to merger analysis prior to the 1980s—the field of Industrial Organization has come a long way since 1980 and the new empirical IO, while acknowledging that mergers can be efficient and pro-competitive, is in significant respects a repudiation of the Chicago School.

I’d like to hear your high-level reactions to the Round One commentary.

Leemore: I am intrigued by your argument that any misguided or unjustified content in the final Merger Guidelines will be discarded by the courts if it undermines merger enforcement. As we know, the courts need not defer to the Guidelines, so I worry they may simply set them aside (except to the extent the principles are embodied in prior decisions). If that happens, the Agencies (the Federal Trade Commission and Department of Justice Antitrust Division) will have forfeited the opportunity to use the new Guidelines to advance the frontier of enforcement. I’m hardly in Bilal Sayyed’s camp (“the adoption of these Guidelines will end the era of Guidelines as effective tools to shape the law”), but I am glad the Agencies are seeking comments, and I’m hopeful the next draft will address some of the most important ones.

Cory: I am not too concerned because if courts do not accept new Guidelines then they—precisely as you indicate—will likely rely on existing case law. The last 13-plus years of district and circuit court decisions generally reflect the analytic principles in the 2010 Horizontal Merger Guidelines, so continued application of those principles is the likely alternative to courts embracing the new Merger Guidelines.

Which of the comments are you most hoping the next, and presumably final, iteration will address?

Leemore: To my mind, priorities include (1) adopting a guiding principle for what “lessening competition” means, as Carl Shapiro advocates; (2) clarifying that merger enforcement seeks to protect competition rather than competitors (except insomuch as the latter achieves the former), as recommended by commentators including Dennis Carlton and Herbert Hovenkamp; and (3) establishing some hierarchy across the different potential sources of competitive harm, meaning an ordering of the guidelines or components within them that reflects the likelihood a transaction is anticompetitive.

Given the key objective of the revised Guidelines is to bolster antitrust enforcement—an objective I applaud—I understand why the drafters chose to equate an increase in concentration with a reduction in competition (Guideline 1). It may well be easier for an Agency to establish an increase in concentration than a lessening of competition. Bright lines demarcated by HHIs and delta HHIs—paired with the proposed lower thresholds—also have the benefit of clarity (and as the drafters repeatedly remind us, legal precedent). But the draft Guidelines elevate an imprecise measure of competition in imperfectly defined markets, implying that concentration is a sufficient statistic for competition rather than a strong signal. This strikes me as risky because it elevates the role of market definition and amplifies arguments over exactly how to measure market shares.

The drafters try to have it both ways via Guideline 2 (“Mergers Should Not Eliminate Substantial Competition Between Firms”), but given the attractiveness of the path of the least resistance I fear the Agencies would be tempted to rely on Guideline 1. Hence market definition and measures of market structure could end up dominating evaluation of competitive effects, notwithstanding the Agencies’ chief economists’ public statements that this is not the intent of the new Guidelines. (If the new Guidelines are meant to de-emphasize market definition, why not state clearly that market definition can be useful for purposes of description and illumination but is neither strictly necessary nor sufficient to establish a Section 7 violation? That must be a bridge too far in light of courts’ preference for precisely establishing “a line of commerce” and “section of the country” but the current emphasis on market definition in litigation can impede consideration of whether the proposed combination has adverse effects on competition.)

Relatedly, if eliminating a “relatively small competitor” is enough to trigger a presumption under Guideline 1, one could infer the Agencies may act to protect the existence of firms generally rather than the competitiveness of commerce as the Clayton Act specifies.

The third revision I hope to see is some indication of which guidelines identify mergers the Agencies view as likely to be most problematic, such that more rebuttal evidence is required to defend against a challenge based on that guideline or a specific component. Just as certain but not all collaborative practices are deemed so likely to be harmful they are per se illegal, the revised Merger Guidelines would ideally further clarify which types of transactions are deserving of relatively stronger scrutiny.

Cory: I think Guidelines 1, 2, and 3 are likely to get priority, since those correspond to the heart of the 2010 Merger Guidelines: unilateral and coordinated effects. That’s probably why they come first. Guideline 11 is the buy-side analog of Guideline 2, so that is probably on par in importance though applicable to fewer mergers. Guideline 10 on platforms is probably next, given their central role in the modern economy and the Agencies’ focus on the tech sector. Perhaps tied with that are Guidelines 5 and 6, which cover non-horizontal mergers. That leaves Guidelines 4, 7–9, and 12–13. I don’t have a ranking among these, but I suspect Guidelines 12 and 13 are last in both numbering and priority.

Leemore: The numbering must be intentional, and your reasoning is sound, but I don’t think it reflects the hierarchy of likely harm. Eleanor Fox makes a related point, asking for clarification of when “the red flags” in the draft Guidelines imply a significant threat to competition. I think that inclusion of a presumption could reflect hierarchy (i.e., guidelines or components of guidelines that include presumptions could be viewed as those for which harm is most likely), but that approach isn’t uniformly adopted in this draft. Rather, it seems the presumptions are less reflective of the likelihood of harm than of the ease of coming up with an intuitive numerical bound, preferably embraced in some judicial decision. I would favor more language-based presumptions describing types of transactions that seem especially likely to lessen competition, based on empirical evidence or compelling conceptual arguments.

Switching gears, are you bothered by the reduced emphasis on economic arguments in the main text of the draft Merger Guidelines?

Cory: I’m not concerned over whether the economics are in the appendix or the main text, but I have some concern over the total volume and clarity of economics, and neither seems to have increased much. That said, Guideline 10, on platforms, does embed new ideas drawn from economics, as does Guideline 5. But, overall, the main text is focused on case law while the economics appendices on “analytical tools the Agencies often use” seem to generally align with the 2010 Horizontal Merger Guidelines.

I see this more in terms of opportunity cost. As I indicated in Round One, in any given merger challenge the FTC and DOJ already thoroughly cite and explain case law, old and new, that they view as helpful to their arguments. Given that, will compiling that case law into new Merger Guidelines have much impact, whether negative or positive, on courts and merger challenges? Quite possibly not.

In place of extensive discussion of older case law, what else could the Agencies have done to help them bring and win more merger challenges? In my antitrust lifetime, there have been two revitalizations of merger enforcement: first, the return of successful hospital merger challenges in the late aughts, after a string of Agency losses in the 1990s; second, unilateral effects cases after DOJ’s 2004 loss in Oracle-PeopleSoft. Critically, both of those shifts came from efforts to improve and better explain the economic analyses of competitive effects.

The hospital turnaround came from economic research leading into the early 2000s, DOJ and FTC hearings and their comprehensive 2004 report, and the FTC’s hospital merger retrospectives. Since that time, the FTC has, by its tally, “obtain[ed] thirteen federal injunctions in hospital cases from 2008 to 2018, compared with only two from 1997 to 2007.” Moreover, many proposed hospital mergers were abandoned after an FTC challenge (most recently, in Utah, Tennessee, and New Jersey).

In unilateral effects cases overall, the Agencies had a mixed track record leading into the mid-2000s, albeit closer to 50/50 rather than 0-for-7 as with hospitals. Certainly, the Agencies viewed the Oracle-PeopleSoft loss as underscoring the need for a clear explanation of how firms compete in differentiated products markets and how courts should evaluate market definition and unilateral effects in such markets. Doing just that was a central motivation behind the 2010 Horizontal Merger Guidelines and, as Carl Shapiro and Howard Shelanski argue—credibly in my opinion—they achieved that purpose. The resulting improvement in the Agencies’ litigation outcomes was, as with hospitals, fundamentally about better explaining economics to courts.

To be fair, the FTC is also conducting retrospective studies and can simultaneously release new Merger Guidelines. But the past shows that making economics more central and more clearly explainable to courts improves the Agencies’ outcomes in merger challenges. That is not what these draft Merger Guidelines do. (Eric Posner describes them as a “return to the law” and Zephyr Teachout describes them as a “return to common sense and the rule of law.” Fox has a similar view, but she argues that the draft Merger Guidelines are “fully consistent with modern economics.)

Leemore: Look, I am sure those reading are aware that we are economists advocating for more economics. And while there are plenty of spots where the economic arguments have been deepened and broadened (most significantly, the extensive discussion of non-horizontal mergers), relative to the 2010 Horizontal Merger Guidelines this draft heightens the emphasis on market structure/concentration and legal precedent. Yet, whether a proposed merger is anticompetitive depends on the financial incentives facing the merging parties and their ability to act on them and to exercise market power in a way that ultimately lessens competition in one or more markets. Anchoring the Guidelines in the economics should strengthen enforcement of competition statutes and better enable interpretations that match the evolving economy.

As for whether the case law discussion and citations crowded out other ideas, the draft Merger Guidelines are 50% longer than the 2010 Guidelines (based on page counts). I doubt lack of real estate or concern about diluted focus explains the shift in emphasis.

Cory: Let’s close with three lighting round recommendations each.

Leemore: I gave three at the outset, here are three more.

1. Include a statement affirming the optionality of defining antitrust relevant markets, especially for cross-market cases.

2. Excise the statement in Guideline 4 (potential entry) that “subjective evidence that a company considered entering . . . can also indicate a reasonable probability that the company would have entered without the merger”—the term “considered” could include a circumstance where a company evaluated organic entry and projected it would be highly unprofitable.

3. Further develop Guideline 13A regarding mergers that enable firms to avoid regulatory constraints applicable to only one of the merging firms—what are examples of such mergers and would exploiting regulatory loopholes or downstream market failures via merger constitute a lessening of competition?


1.Revise Guideline 7—particularly the final paragraph—to make clear that entry, even by firms with a 30% or greater market share in a related market, generally increases competition; also, better describe circumstances in which the Agencies believe that would not be true.

2. Guideline 5 includes both foreclosure and facilitation of coordination—merge the first half of Guideline 5 (5.A) with Guideline 6 and move the second half (5.B) to Guideline 3.

3. Clarify that the “trend toward vertical integration”—one of the “plus factors” described under Guideline 6 (vertical mergers)—is relevant only when and if such a trend is likely to be anticompetitive; the right answer to make vs. buy decisions, which are part of how firms compete to lower costs and improve their products, often changes as technology advances.

Author Disclosures:

Leemore Dafny, Bruce V. Rauner Professor of Business Administration, Harvard Business School and Professor of Public Policy, Harvard Kennedy School. Dr. Dafny is also a Partner with Bates White Economic Consulting and serves as an expert in litigated and non-litigated merger cases on behalf of state and federal agencies as well as on behalf of private entities with a financial interest in the Merger Guidelines.

Cory Capps, Partner, Bates White Economic Consulting. Dr. Capps frequently serves as an expert in litigated and non-litigated merger cases on behalf of state and federal agencies as well as on behalf of private entities with a financial interest in the Merger Guidelines.

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