For decades antitrust agencies, courts, and scholars have debated whether Section 7 of the Clayton Act permits an efficiency defense, in which merging firms can argue that enhanced efficiencies from the merger show that it does not reduce competition. However, the Supreme Court’s recent establishment of the “major questions doctrine,” which enforces or re-enforces a textualist reading of regulatory statues, undermines proponents of the efficiency defense, because the Clayton Act does not clearly and explicitly contain an efficiency defense. The “major questions doctrine” essentially acts as textualism on steroids,” writes Robert H. Lande.
For decades, there has been a lively debate over whether Section 7 of the Clayton Act contains some kind of an efficiency defense that merging firms can use to defend the benefits of their merger. The debate has included the Clayton Act’s legislative history and a number of policy considerations, including how often mergers lead to significant efficiencies and how often these efficiencies are passed to purchasers. This debate has not, until now, considered how the defense is effected by the “major questions doctrine,” which the Supreme Court elevated in recent years and articulated most clearly in its 2022 ruling in West Virginia v. EPA.
This doctrine holds that for “major” issues, such as the government’s ability to regulate greenhouse gases to mitigate climate change, a government agency must argue that “something more than a merely plausible textual basis for the agency action is necessary.” This “something more” the Court references is “clear congressional authorization” for the power it claims…. to regulate in that manner.” The Supreme Court added that courts should proceed under the assumption that “Congress intends to make major policy decisions itself, not leave those decisions to agencies.” a ruling which has had major impacts. The Court also noted that extraordinary grants of regulatory authority are rarely accomplished through “vague terms” or “subtle devices.”As Louis Capozzi writes, the logic of the major questions doctrine applies to all important agency decision-making, including the formulation of the antitrust agencies’ merger guidelines, not just to decisions made through rulemaking.
The vulnerability of those who argue that Section 7 includes an efficiency defense is that the Clayton Act does not contain any explicit mention of an efficiency defense. The argument that an efficiency defense could be read into the statute held a stronger position before 2022, when agencies and courts possessed more leeway to interpret antitrust law and Congress’ original intent. However, the explicit textualist turn in recent years of the Supreme Court has restrained the interpretative discretion of the federal agencies and lower courts and highlights the significance of the fact that Congress never explicitly included an efficiency defense in Section 7 of the Clayton Act. Consequentially, the major questions doctrine precludes the antitrust enforcers and the courts from considering alleged merger efficiencies as defenses (or rebuttals, exceptions, or considerations when they decide whether a merger may substantially lessen competition).
Abbreviated Textualist analysis: The Clayton Act does not contain an efficiencies defense
A textualist approach to the merger efficiency question would plainly and straightforwardly read the Clayton Act and ask whether an efficiency rebuttal, defense, consideration or exception appears in the words of the statute. It does not. The Clayton Act forbids all mergers that “may be substantially to lessen competition or tend to create a monopoly.” The statute does not contain an efficiency notion of any kind. Courts and enforcers engaging in a textualist reading of the Clayton Act should not create exceptions that are not in the text of the law (see my recent paper for a full textualist analysis of the Clayton Act). In Bostock, the Court notes “[U]nexpected applications of broad language reflect only Congress’s ‘presumed point [to] produce general coverage—not to leave room for courts to recognize ad hoc exceptions.” As Antonin Scalia and John F. Manning contend, nor should they impose their own policy preferences into a statute.
It would have been simple for Congress to include an efficiency defense in Section 7 of the Clayton Act. Congress knew how to include one when it wanted one because the 1936 Robinson-Patman Act amendment to the Clayton Act does contain an efficiency defense. Although Section 2 of this amendment forbids price discrimination between business partners whose effect “may be substantially to lessen competition or tend to create a monopoly” (the exact language contained in Section 7!), it also provides an explicit efficiency defense if the defendant can show that its pricing was caused by a lower “cost of manufacture, sale or delivery…”
Because Congress in 1936 included an efficiency defense in Section 2 of the Clayton Act, but did not do so when it enacted Section 7 of the Clayton Act in 1914 or when it passed the Celler-Kefauver Amendment in 1950, Section 7’s lack of an explicit efficiency defense should conclusively decide the efficiency defense question. It is not in the statute. Therefore, judges should not allow one even if they personally consider it to be sound public policy. (The antitrust enforcers could, of course, use their discretion to decline to challenge those few mergers they believed likely to produce significant efficiencies but unlikely to produce serious market power effects.)
To a textualist, it should be straightforward that mergers that may “tend to create a monopoly” are not entitled to an efficiency defense. This is because the plain reading of this text contains no exception for cases where a nascent monopoly might be likely to be “efficient,” produce cost savings, or have an incentive to charge lower prices.
The “May Be Substantially To Lessen Competition” clause of Section 7
Although the Clayton Act does not contain an explicit efficiency defense, could efficiencies be admitted under the “may be substantially to lessen competition” clause to the extent that efficiencies might prevent a lessening of competition, and even lead to lower prices or improvement in output? Professor Herbert Hovenkamp, for example, stresses this argument: “This interpretation of the statute both acknowledges the possibility of offsetting efficiencies but preserves the statute’s literal meaning. It is not so much an efficiency “defense” as a showing that the merger does not injure competition in the first place.”
The key question from a textualist perspective is what “competition,” and therefore the phrase “may be substantially to lessen competition,” meant in 1914. To answer this question, we should consult the English language dictionaries and legal dictionaries from the 1900–1950 period that Justice Scalia, the Court’s defining textualist until 2016, considered “useful and authoritative.” Every one of these dictionaries defined competition in terms of rivalry, in terms of acts of rivalry. None used an economic definition of “competition.” None redefined more “rivalry” to mean “having lower costs,” “being more efficient,” or having an incentive to lower prices.
Suppose a merger would reduce the number of rivals in a market from three down to two. Under a straightforward definition of “rivalry,” a textualist should conclude that the amount of rivalry (i.e., competition) in the market would be likely to decrease, even if the merged firm would experience lower costs, because two firms are likely to “compete” less—engage in less rivalry—than three firms.
For a textualist the speculative possibility of “enhanced rivalry” from a merger should not be enough to offset the fundamental point that Congress chose not to include, or even to mention, the terms “efficiency” or “lower costs” in Section 7. As noted, Congress included an efficiencies defense in the Robinson-Patman Act amendment to Section 2 of the Clayton Act, but not in Section 7. Allowing an efficiencies defense in Section 7 cases would therefore be bn example of an enforcer or court inserting its own policy preferences into the law—the opposite of textualist principles. This would be the type of regulatory action the Supreme Court in West Virginia v. EPA warned are “rarely accomplished through… ‘vague terms,’ or ‘subtle device[s]’.”
Must enforcers and courts “fill in” an efficiency defense to Section 7?
Surely, agencies and courts must develop rules and methods to enforce statues. The major questions doctrine is itself a principle the Supreme Court created, though it’s one intended to articulate what it believes to be the intent of the Constitution. So, another argument for an efficiency defense is that it is not an invention of the antitrust agencies and courts, but a valid interpretation of the statue’s intent designed to advance its overall purpose. Professor Hovenkamp describes how courts have developed doctrines beyond the antitrust statutes’ express terms to facilitate enforcement of the statute:
[T]he courts have responded with judicial development of many rules and doctrines that are not mentioned in the brief statutory texts. For example, antitrust doctrines such as the per se rule, the rule of reason, the relevant market or market power requirement, barriers to entry, the horizontal/vertical distinction, or potential competition mergers are not mentioned in the statutes. Can their recognition realistically be construed as “interpretations” of the text? Or are they simply the creation of new doctrine that the statutes do not contemplate?
The items in Hovenkamp’s list that are of most relevance to merger analysis are market definition and barriers to entry. It is rational and, in fact, inevitable and necessary, that the enforcers and the courts invent principles to assess market definition and barriers to entry. After all, how could a court rule that a merger has or has not “tended to create a monopoly” or “substantially lessened competition” unless the court first defines a market? Unless the enforcers and the courts find that entry into the market is difficult? Naturally the courts invented tests for these needs, rather than to have their absence render the merger laws nullities. This was the only practical way to effectuate Congressional intent to block mergers that “may be substantially lessen competition” or “tend to create a monopoly.”
But the same rationale, the same inevitability and necessity, does not apply to the efficiency defense. It was invented by the drafters of the 1968 Merger Guidelines, but only for “exceptional circumstances.” And although it often has affected enforcement decisions, it has rarely been used successfully in litigation. No efficiency defense existed from 1914 to 1968, because it was not necessary for enforcement of the law before 1968 (or afterwards). It was simply not necessary for enforcement in the same way that market definition or barriers to new entry principles are necessary. Rather, it’s an example of a regulatory agency going off on its own, without any clear authorization from Congress. It was an example of conservative regulators and (arguably, depending upon how you read the cases) judges implementing their own policy preferences.
Applying the major questions doctrine to merger efficiency defenses
As should be expected, the major questions doctrine has generated substantial uncertainty over what makes a question “major” and when an agency action has a sufficiently “significant” effect on the national economy.” Naturally, this uncertainty has led to a “flood” of cases.
Are corporate mergers and the defenses allowed for them “major questions” of high economic significance? An insightful article by Sarah Oh Lam analyzed the factors that have helped courts decide whether the major questions doctrine applies to particular sets of facts that might have a “significant” economic effect on the national economy. Lam analyzed the economic factors that have arisen in Supreme Court cases applying the major questions doctrine, as well as in earlier cases relevant to the doctrine. The Supreme Court-relevant factors in Lam’s list that could be significantly affected by a merger efficiency defense include: A. Significant Portion of the American Economy; C. Number of People Affected; D. Number of Companies Affected; and E. Dollar Amount of Economic Activity in the National Economy.
Although the number of mergers the enforcers actually decide to challenge annually is relatively modest (18 in fiscal year 2025), the number of mergers, and the amount of commerce, that could potentially be impacted by the agencies’ decision to include an efficiency defense in their review of mergers during merger enforcement is immense. In the aggregate these reviews could well have significant consequences for the national economy.
For example, in fiscal year 2025 the aggregate dollar value of the mergers and acquisitions reviewed by the antitrust enforcers under the Hart-Scott-Rodino Act was $2.5 trillion. During that year companies reported 2,006 transactions under this Act, of which 31.8% were valued at $1 billion or more. The merging parties requested early termination of the statutory waiting period for 911 of these transactions, of which the agencies granted 265 requests. In 41 investigations, the agencies issued a “Second Request” for more information. Any of these enforcement or non-enforcement decisions could potentially have been impacted by a merger efficiencies defense.
Many individual mergers are extraordinarily large. For example, from 2015 to 2019 there were 92 corporate mergers or acquisitions where both the acquiring and the acquired firm were valued at more than $10 billion and, in 46 of these, both companies were valued at more than $25 billion. In 23, both companies were valued at more than $50 billion. The enforcers’ decision whether to challenge even one of these huge mergers could affect a significant number of workers, companies and consumers.
Taken together, this volume and value of merger activity clearly affects significant portions of the American economy, vast numbers of customers, workers and companies, and a huge amount of commerce. Taken together, the agencies’ review of these mergers—including its review of firms’ efficiency arguments—could potentially impact a significant number of the criteria that Lam identifies as relevant to the Supreme Court. It is clear that the major questions doctrine should prevent the enforcement agencies and courts from taking it upon themselves to consider alleged efficiencies when they enforce the Clayton Act.
Conclusions
In some ways, the “major questions doctrine” is textualism on steroids. This is because the major questions doctrine reenforces and strengthens a plain and straightforward reading of the text of the merger statute. The text of Section 7 of the Clayton Act does not contain an explicit efficiencies defense, and the major questions doctrine does not permit the enforcers or the courts to consider things not in the statute, such as efficiency defenses, rebuttals, exceptions, or considerations when they decide whether a merger may substantially lessen competition or tend to create a monopoly.
As the Supreme Court held in West Virginia v. EPA, “Extraordinary grants of regulatory authority are rarely accomplished through…. ‘vague terms,’ or ‘subtle device[s]’…. [n]or does Congress typically use oblique or elliptical language to empower an agency or make a ‘radical or fundamental’ change to a statutory scheme.” The Clayton Act does not contain any form of an efficiency defense, and if the enforcement agencies include one on the excuse that it is a way to help determine whether the merger may “substantially lessen competition,” this would constitute an example of an agency making a “radical or fundamental” change to a major statutory system on the basis of “vague terms” and “subtle devices.”
The Supreme Court similarly warned that enforcement agencies have not been given the authority to decide “major questions” on the basis of “ambiguous statutory text” and that “something more than a merely plausible textual basis” for the agency action is necessary. The agency instead must point to “clear congressional authorization” for the power it claims. As noted, “A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.” We presume that “Congress intends to make major policy decisions itself, not leave those decisions to agencies.” The Court also explained:
Agencies have only those powers given to them by Congress, and “enabling legislation” is generally not an “open book to which the agency [may] add pages and change the plot line.” … Or, as we put it more recently, we “typically greet” assertions of “extravagant statutory power over the national economy” with “skepticism.”
Regardless whether we call the conclusion “textualism” because it’s not in the text of the statute, or a violation of the “major question doctrine” because it wasn’t clearly included by Congress in the statute, Section 7 of the Clayton should not be read as having any form of an efficiencies defense.
Author’s Note: The author thanks Shishene Jing for wise suggestions and Olivia Bishop for excellent research assistance.
Author’s Disclosure: The author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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