Jonathan B. Baker provides his reactions to the final 2023 Merger Guidelines, including why they strengthen enforcement and where the antitrust enforcement agencies can further clarify their merger analysis.
The 2023 Merger Guidelines strengthen merger enforcement by setting forth a sensible and up-to-date approach to the economic analysis of mergers in a framework that serves the goals of both neo-Brandeisian and post-Chicagoan antitrust reformers. To understand this accomplishment, it is helpful to compare the new Merger Guidelines with their predecessors.
The 1992 Horizontal Merger Guidelines were the first to require the government to spell out an economically focused competitive effects theory: an explanation of the mechanism by which the proposed merger would be expected to harm buyers or suppliers by reducing rivalry. This was a major innovation over the 1982 Guidelines (modified slightly in 1984), which were themselves transformational in shifting the focus of merger analysis from market structure (the emphasis of the 1968 Guidelines) to market power.
Notwithstanding their novel attention to competitive effects, the 1992 Guidelines led with market definition and market concentration (and continued to do so after the revision to the efficiencies section in 1997). The 2010 Guidelines, the next revision, downplayed market structure to some extent relative to their predecessor but followed prior guidelines by discussing structure before discussing competitive effects.
The 2023 Merger Guidelines are organized differently. The new Guidelines relegate the mechanics of defining markets and evaluating concentration to the end of the final section. Instead, the 2023 Guidelines begin by setting forth six frameworks by which the government can establish its prima facie case that a merger may harm competition (Guidelines 1-6). Five of these are competitive effects theories.
The other (Guideline 1) focuses on market structure, but it does not describe high and increasing concentration as inherently harmful or make it conclusive. Instead, it connects market structure to competitive effects. It treats market structure as an “indicator” of competitive harm, tied either to risks from the elimination of competition between the merging parties (Guideline 2) or to risks involving coordination among market participants (Guideline 3), and it describes the presumption of illegality that market structure creates as capable of being disproved or rebutted.
The second paragraph of the 2023 Guidelines places the economic effects of mergers in the foreground. That paragraph emphasizes that merger analysis is concerned with the way acquisitions can deprive buyers or sellers of the economic benefits of competition on dimensions such as price, quality, and innovation by facilitating the increase, extension, or entrenchment of market power, an economic concept. And the 2023 Guidelines strengthen enforcement by providing extensive, rich, informed, and occasionally novel economically oriented frameworks for evaluating a wide range of issues not treated as extensively or at all in prior Guidelines—including but not limited to mergers that exclude actual or potential rivals by limiting their access to an input or route to market, or by gaining access to their competitively sensitive information (Guideline 5); mergers that entrench or extend a dominant position (Guideline 6); mergers involving multi-sided platforms (Guideline 9); and mergers that harm suppliers, including workers (Guideline 10).
In short, the 2023 Guidelines are reasonably read as doubling down on the 1992 Guidelines approach of framing merger analysis around economically focused competitive effects theories. In doing so, the final 2023 Guidelines have clarified much of what had been ambiguous about the role of market structure in merger review in the draft Guidelines that had been circulated for comment in the summer of 2023, and thereby demonstrated that in strengthening merger enforcement, they are not returning to the language and spirit of the 1968 Merger Guidelines.
At the same time, the 2023 Guidelines employ a novel structure: they assign some analyses to the government’s prima facie case and others to the merging firms’ rebuttal case. That assignment suggests how burdens of production should be allocated in litigation. Past Guidelines leaned much more toward simply explaining how the Federal Trade Commission and Department of Justice Antitrust Division (the Agencies) expected to exercise their enforcement discretion, though they did suggest burden allocations to some extent. The 2023 Guidelines use this structure to suggest skepticism about the likelihood of successful rebuttal on ease of entry, efficiency, or failing firm grounds. Doing so appears intended to signal a tough enforcement stance across the board, thereby advancing a key neo-Brandeisian goal.
By adopting the dual approach of emphasizing economic analysis and explicitly allocating burdens, the 2023 Guidelines have, to a substantial extent, identified common ground on merger review between the antimonopoly (neo-Brandeisan) activists in the current enforcement agency leadership and centrist reformers (post-Chicagoans). Taking this course is consistent with other recent signs of agency pragmatism in merger enforcement: withdrawing or settling cases with little hope of litigation success and accepting behavioral settlements despite a preference for structural relief. The emphasis on economics in particular promises to pay dividends in litigation because economic arguments and evidence are the key to persuading a Supreme Court committed to understanding the antitrust laws as advancing economic goals.
While my overall reaction to the 2023 Guidelines is strongly positive, I have qualms about their citations to judicial precedent. I fear that those references will make the Guidelines less persuasive than they could be. I acknowledge that the Guidelines would lose credibility were they to deviate from reasonable interpretations of merger precedents, and that they necessarily reflect legal and administrability considerations (as when relying on a structural presumption in horizontal merger analysis or allocating burdens of production between the government and the merging firms). But the Guidelines would also be expected to lose credibility if they make what appear to be tendentious interpretations of legal precedent—a subject on which judges would be expected to rely on their own expertise rather than defer to agency views.
The 2023 Guidelines explain that legal holdings reflecting the Supreme Court’s interpretation of a statute apply unless subsequently modified, but they don’t account for the ways in which lower courts have interpreted formally controlling Supreme Court precedent on mergers in the five decades since the Court’s last substantive decisions in that area. The Guidelines indicate that the Agencies might analyze the facts in older court decisions differently today, but they do not clarify which aspects of older Court decisions should be treated as authoritative and which not. (Why, for example, is it appropriate to rely on the 30% market share threshold for the structural presumption employed in Philadelphia National Bank (PNB) but not rely on the much lower threshold employed two years later in Pabst?) The Agencies have made defensible and generally sound policy judgments on the matters on which they rely on precedent (including by preferring the concentration threshold in PNB to the threshold in Pabst), but those judgments do not appear to be compelled by the cited decisions, and the references to the case law do not appear to enhance the credibility of the final product. Even if courts are not fully persuaded by the Guidelines’ legal analysis, however, they should not ignore the Guidelines’ cogent economic analysis.
I also have questions about various details, outlined in the five sections below, that could usefully be addressed by agency officials, perhaps in speeches or articles.
- The Guidelines missed the opportunity to clarify the definition of “maverick” in regard to evaluating the risk of coordination (section 2.3.A). The court in H&R Block did not find helpful a prior Guidelines definition that focuses on the firm’s disruptive role, slightly revised in the 2023 Guidelines to “disruptive presence,” because it did not explain how to distinguish a maverick from any other aggressive competitor. Why not instead explain that a maverick is a firm with an incentive and ability to prevent coordination or prevent coordination from becoming more effective, regardless of whether the firm is observably disruptive? That definition would have clarified that a maverick is a firm that is most apt to be the binding constraint on coordination, and it would have been consistent with the way the H&R Block court found it germane to describe the acquired firm there. Or is the observation in section 2.3.B that the risk of coordination can increase when a merger removes “a firm that has different incentives from most other firms in a market” intended to capture this idea? If so, shouldn’t the Guidelines have suggested a relationship between the discussion of “aligned incentives,” where that observation is found, and the discussion of “elimination of a maverick”?
- Is section 2.3 intended to encompass the effect of mergers on what Joe Farrell and I refer to as “non-purposive coordination” (and was called “parallel accommodating conduct” in the 2010 Guidelines)? These terms refer to a lessening of competition that arises as a consequence of the natural and predictable responses of rivals. The second paragraph of section 2.3 can be read to account for this conduct along with coordinated outcomes supported by responses intended to punish cheating (the “purposive” coordination modeled by oligopoly supergames); is that reading correct?
- Harms to competition in future product markets are (i) implicitly addressed in section 2.2 (which alludes on p. 7 to what is in effect the internalization of future product market competition), (ii) explicitly addressed in section 2.4 (in footnote 23), (iii) arguably addressed in section 2.6.A (to the extent the nascent competitive threat would be expected to constrain the dominant firm through growth by innovation), and (iv) related to the market definition method set forth in section 4.3.D.7. Are they also at stake in section 2.5.C, which perhaps reads like a “perceived potential foreclosure” theory? That is, does section 2.5.C encompass harms to future competition—in this case the possibility that the merger would operate as a commitment to more aggressive competition in R&D or future products, thereby discouraging rival investment in product improvements? Or is the section simply intended to make the same point the guidelines make earlier in section 2.5 when discussing multi-level entry? Similarly, is the discussion in section 2.9 of ways that a merger might induce a platform operator to change its behavior in various ways that have the effect of making it more difficult for rivals to compete intended to encompass harms to competition in future products as well as harms in current products?
- Can considerations about the longer-term impact of a merger on market power and industry dynamics (section 2.6) be used to disprove a claim that the merger will entrench a dominant position? Or can “dynamic competitive effects” only be used as they are presented in that section: as a basis for demonstrating durable market power?
Series of Acquisitions
- The examination of a series of acquisitions (section 2.8) could lead enforcers to identify competitive concerns with multiple mergers (presumably including consummated ones) that would otherwise not be challenged. Is that the point of the section? Or do the Agencies intend to challenge a firm’s “overall strategic approach to serial acquisitions,” as the section could instead be read to suggest, as distinct from challenging specific transactions?
- The Guidelines indicate in both sections 3.2 and 2.4.C that the Agencies look to whether entry will replace the “lost competition” that arises from merger. Is this language intended to summarize the idea that entry would deter or counteract the competitive effects of concern set forth at the start of section 3.2, or is it intended to be a different standard?
- Does entry likelihood (section 3.2) relate to profitability, as it did in prior guidelines, or is the omission of a reference to profitability intended to suggest that likelihood will be evaluated in some other way (and if so, how)?
- The Guidelines recognize that market definition focuses solely on demand substitution factors (section 4.3.D.3). Does this mean that the Brown Shoe practical indicia (tool C) are relevant to market definition only insofar as they are related to identifying demand substitution? (Several are related to demand substitution. But one (“unique production facilities”) appears related to supply substitution and others (“industry or public recognition of the submarket as a separate entity,” “distinct prices,” and “specialized vendors”) may or may not be related to demand substitution.) That interpretation would also be consistent with (i) the Guidelines’ requirement that a market be broad enough to guarantee that a loss of competition among all the suppliers of a product would harm at least some customers of at least one product (section 4.4); (ii) the Supreme Court’s post-Brown Shoe recognition in Rome Cable of buyer substitution as the basis for market definition, explicitly rejecting the role for supply substitution endorsed in a dissent;and (iii) the way at least one recent court decision has used the practical indicia when defining markets.
The 2023 Merger Guidelines set forth a sensible and up-to-date approach to the economic analysis of mergers in a framework that is generally acceptable to both neo-Brandeisian and post-Chicagoan antitrust reformers. That great achievement is not diminished by my qualms about their use of legal precedent or my questions about various details. Taken as a whole, the 2023 Merger Guidelines strengthen merger enforcement by finding common ground among antitrust reformers.
Author Disclosure: Jonathan B. Baker is Professor of Law, Emeritus, American University Washington College of Law and Senior Academic Advisor, Thurman Arnold Project, Yale University. He is not currently consulting for any client or entity with respect to any merger that is pending, contemplated, or under investigation after consummation, though he has consulted with government and private sector entities on merger matters in the past. He served on the enforcement agency working groups charged with drafting the 1992 and 1997 Horizontal Merger Guidelines.
Articles represent the opinions of their writers, not necessarily those of ProMarket, the University of Chicago, the Booth School of Business, or its faculty.