When the Federal Trade Commission and Department of Justice announced plans to revise their merger guidelines earlier this year, it marked a dramatic shift from business as usual. Their announcements set the stage for a new era in antitrust regulation where mergers are not seen as inherent benefits to the market to be encouraged but rather as inherent threats of which to be skeptical.
In “Rolling Back Corporate Concentration: How New Federal Antimerger Guidelines Can Restore Competition and Build Local Power,” the Institute for Local Self-Reliance (ILSR) provides context illuminating why the departments’ new stance on merger activity is both enormously consequential for today’s economy and also entirely consistent with what Congress intended when creating antimerger law in the mid-20th century. The introduction and report summary are below, and the full report can be downloaded here.
A major shift is afoot in the federal government’s stance on big business. Earlier this year, the two agencies in charge of enforcing the antitrust laws, the Federal Trade Commission and Department of Justice, announced that they plan to revise their merger guidelines. That may sound like a minor technicality, but in fact, it heralds a sea change in the workings of antitrust law. The new guidelines, expected later this year, will likely make it much harder for large corporations to amass power by buying other companies. Over time the guidelines will also shape how judges understand and apply the antitrust laws in their rulings.
Had this shift in enforcement policy come about years ago, Americans wouldn’t be contending with a host of debilitating problems caused by consolidation. Mergers in the food industry, for example, have allowed dominant meatpackers and other processors to slash the incomes of farmers and food workers, while raising grocery prices. Mergers among manufacturers of everything from appliances to beer cans have led to the shuttering of plants, costing communities thousands of jobs. Hospital mergers have sent health care costs soaring, while dozens of rural communities have lost their hospitals altogether, as big hospital chains bought and then closed small facilities. Meanwhile, Amazon, Facebook, and Google have used acquisitions to thwart potential competition and lock in their dominance, to the detriment of small businesses, local newspapers, and others seeking to communicate or sell products online.
New merger guidelines hold the promise of putting a stop to these kinds of domineering moves by powerful corporations. But their potential isn’t limited to simply preventing America’s monopoly problem from getting worse. Strong merger enforcement would create a fairer playing field for small businesses and allow more startups to gain a toehold, deconcentrating industries over time. And as we’ve noted, the merger guidelines provide a framework for understanding the antitrust laws that history shows can significantly influence how the courts apply the law, and not only in merger cases.
We anticipate that the new guidelines will bring the agencies’ enforcement policies back in line with the law as written by Congress. The key legislation in this case is the Celler-Kefauver Antimerger Act, a major amendment to the nation’s existing antitrust laws, which passed with overwhelming support in 1950 after more than two years of study and debate. The legislation’s name tells its story: lawmakers intended to put the brakes on mergers. To this end, the law bars any merger that may lessen competition in any line of commerce in any region. Its intent is to head off consolidation before it begins, when the trend toward industry concentration is “still in its incipiency.”
Congress was alarmed by a surge of mergers in the aftermath of the war and the inadequacy of existing law to stop the wave of consolidation. Drawing on the legislative record, this report shows that, by passing the antimerger act, lawmakers aimed to halt further concentration and ensure that economic power would be widely dispersed across a multitude of independent businesses. Doing so would protect competition and its benefits. It would also address a much deeper worry that drove Congressional debate: Having witnessed the link between monopoly control of industry and fascism in Nazi Germany, lawmakers were keenly aware of how rising concentration threatened American liberty.
By outlawing many mergers, Congress sought to prevent corporations from growing so powerful that they could overshadow and manipulate government. Lawmakers also intended the law to safeguard democracy at its most elemental level. Throughout the debate, they underscored the importance of community self-determination and how its absence bred alienation and a loss of faith in democratic government. The antimerger act would promote a decentralized economy, ensuring that communities had sufficient local control of business to direct their own affairs, free from the tyranny of decisions made in distant boardrooms.
If all of this sounds wildly unfamiliar — like the law of an alternate universe, and not that of the United States — that’s because in 1982, the Department of Justice, with a stunning degree of hubris, cast aside the antimerger act’s provisions and issued new guidelines for mergers that explicitly welcomed consolidation, declaring that “mergers generally play an important role in a free enterprise economy.” As a result, within the living memory of most Americans, antitrust enforcers have followed a radically different set of principles than those set out by Congress. They’ve dismissed the law’s concern with power, and even its commitment to competition, and instead defined greater efficiency as the overriding objective in reviewing mergers, with the presumption that large-scale corporations are inherently superior.
The 1982 Merger Guidelines were a calculated bid by the Reagan Administration to gut the antitrust laws without involving Congress. Nevertheless, this drastic shift in policy was also embraced by subsequent Democratic administrations. Updates to the merger guidelines issued under Presidents Clinton and Obama veered even further in favor of concentration. As we detail in this report, the 1997 guidelines gave additional weight to assumptions about the advantages of bigness. The 2010 guidelines sharply raised the threshold for what counts as a merger in a “highly concentrated” market and thus deserving of scrutiny.
Reagan’s advisors correctly predicted that their revamping of the guidelines would not only enfeeble enforcement at the DOJ and FTC, but also influence how the courts approached antitrust cases. This occurred not only in merger cases. The guidelines’ deference to narrow economic theories and disregard of questions of power, liberty, and democracy have shaped how judges interpret and apply the antitrust laws broadly.
We know how this story turned out. Decades of mergers and lax antitrust enforcement have left most sectors — from broadband service to book publishing, news media to airlines — in the hands of a few dominant corporations. Lacking meaningful competition, these corporations have stripped many industries of their productive capacity. They’ve shuttered facilities, curtailed research and investment, cut jobs and wages, muscled out small businesses, and stifled startups. All of this has made the U.S. economy weaker and more brittle. As the recent supply chain failures have demonstrated, concentration has compromised the very thing that market economies should excel at: nimbly adapting to disruptions.
Consolidation has also opened wide disparities in American society. Mergers have centralized power and wealth in a few “superstar” cities, mainly on the coasts, where big banks, tech giants, and other larger corporations reside. Small towns and urban centers that once housed vibrant local economies have suffered amid the disappearance of local businesses, the closure of hospitals and factories, and the loss of advertising, insurance, and other white-collar firms that once served regional markets before being swallowed up. These effects have been especially severe in communities that have been marginalized by redlining and other hallmarks of systemic racism.
The architects behind this radical reengineering of the U.S. economy dismissed the political concerns that motivated the antitrust laws, ridiculing them as “a jumble of half-digested notions and mythologies.” But today those concerns have emerged as alarming realities. Communities find themselves at the mercy of distant, unaccountable monopolies that control the provision of essential services, provide and eliminate jobs as they see fit, and set the local political agenda. This has sowed widespread discontent and alienation, undermining trust in government and destabilizing democracy.
With the new guidelines, the antitrust agencies can bring merger enforcement back in line with the broad economic and political goals set by Congress, while also applying those goals to new areas of the economy, from big tech to private equity. Just as the 1982 guidelines, and their subsequent iterations, influenced how judges approached antitrust cases, we can expect the 2022 guidelines to do the same.
The goal of the new guidelines should not be simply to stop a small number of the worst corporate mergers. Their long-term success should be measured by the degree to which concentrated markets become less concentrated over time. The new guidelines should establish bright-line rules that categorically block mergers that exceed certain thresholds. They should instruct enforcers to sharply scrutinize mergers in sectors that already show signs of a lack of healthy market diversity, including small business activity. They should eliminate efficiency claims as a determinative factor and deter large corporations from pursuing mergers in the first place.
Broadly speaking, new guidelines should foster an approach to antitrust enforcement that decentralizes power, invigorates new business formation, enhances community agency, promotes fair competition, and safeguards the liberty of Americans.
This report is organized into four parts:
Part 1 examines the text and legislative history of the Celler-Kefauver Antimerger Act and goals articulated by Congress.
Part 2 looks at how the agencies’ guidelines and enforcement practice over the last forty years have radically deviated from the law and fostered concentration.
Part 3 documents the consequences of this approach. It focuses in particular on how failed merger policies have sapped the economy of its resilience, led to the decline of independent businesses, transferred wealth to the few, undermined community self-determination, and destabilized democracy.
Part 4 offers ten principles and provisions that should be embodied in the new guidelines.
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