What’s Happening and Why It Matters: The Federal Trade Commission (FTC) and the Justice Department’s Antitrust Division, which share jurisdiction over antitrust enforcement, are proposing new Merger Guidelines. The draft guidelines represent a significant shift in policy from the current guidelines. If implemented, the proposed guidelines would help stop harmful mergers that concentrate power in too few hands. This would protect consumers; create a fairer playing field for small businesses, farmers, and workers; bring new vitality to communities and industries; and protect our democracy from outsized corporate power.
What are the Merger Guidelines: The antitrust laws enacted by Congress charge the Federal Trade Commission (FTC) and the Justice Department (DOJ) with blocking mergers where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” The agencies’ Merger Guidelines outline the standards the agencies use to review a merger and determine whether the deal is illegal and should be blocked.
The Agencies Need to Hear Your Stories: This is a draft proposal. How strong the final guidelines are will depend on the feedback the agencies receive. We strongly encourage you to share your story by submitting a brief comment that expresses support for strong merger guidelines. Is a monopoly crushing your business? Did an acquisition mean someone in your family lost their job? Has your internet service gotten worse and more expensive? Are you living in a food desert? The agencies want to hear your stories and are accepting public comment — at this link — on their draft guidelines through September 18, 2023.
SOURCES & FURTHER READING
Sources for the information in this explainer and more details on the history, practice, and impact of merger law and enforcement policy can be found in ILSR’s 2022 report Rolling Back Corporate Concentration: How New Federal Antimerger Guidelines Can Restore Competition and Build Local Power, the comment letter ILSR submitted in response to the FTC’s request for input on merger policy, and our op-ed in Project Syndicate.
How the New Merger Guidelines Could Reshape Merger Enforcement and The Economy
The draft Merger Guidelines aim to bring the agencies’ merger enforcement policy back into alignment with the antitrust laws enacted by Congress, including the 1950 Antimerger Act.
In 1950, by a wide majority in both houses, Congress passed the Antimerger Act. The act amended the 1914 Clayton Act with the aim of outlawing a wide array of mergers. To this end, Congress banned any merger where the effect “may be substantially to lessen competition… in any line of commerce.” As the law’s legislative history makes clear, lawmakers believed corporate concentration was both an economic and political danger — a reality that we are facing today. Concentrated corporate power threatened small businesses, workers, and the ability of people to control their lives and communities. To prevent these harms, Congress passed a law designed to head-off industry consolidation “in its incipiency” — long before it even gets started.
While the original 1968 Merger Guidelines adhered to the law, in 1982 the DOJ issued new Merger Guidelines that turned the law on its head. Fueled by the philosophy of Robert Bork and the “consumer welfare standard,” the 1982 Guidelines explicitly welcomed consolidation, declaring that mergers “play an important role in a free enterprise economy.” This was a calculated bid by the Reagan Administration to gut the antitrust laws without involving Congress. This drastic shift in policy was embraced by subsequent Democratic and Republican administrations. The most recent revision to the guidelines, made in 2010, further weakened enforcement by removing a large swath of mergers from scrutiny.
The DOJ and FTC are now proposing to bring merger enforcement policy back into alignment with the antitrust statutes enacted by Congress.
The draft Guidelines make it harder for large corporations to amass power by buying other companies. They constitute a crucial, long overdue strengthening of antitrust enforcement, which for decades has fostered rampant, unchecked mergers, weakening the U.S. economy and harming consumers, workers, and small businesses.
Mergers have caused debilitating problems across the country. Mergers in the food industry have led to lower 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 leaving many rural places without hospitals. Meanwhile, Amazon, Facebook, and Google have used acquisitions to thwart potential competition and lock in their dominance.
Lacking meaningful competition, dominant 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.
Today the case for erring on the side of blocking mergers is overwhelming. We need to reinvigorate anti-monopoly policies to bring about a more egalitarian, democratic society — one in which economic power and prosperity are broadly distributed, communities can thrive and determine their own future, and American liberties are safeguarded from concentrated corporate power.
The draft Guidelines better reflect the dynamics of today’s concentrated markets and improve the agencies’ ability to analyze proposed deals and detect mergers that pose a threat to competition.
Through their blind embrace of the supposed benefits of ever-increasing corporate scale, the current merger guidelines have left the DOJ and FTC unable to effectively identify and stop problematic mergers, notably vertical mergers, serial acquisitions, and “buy and bury” deals in the tech sector. The new guidelines give enforcers a more effective lens for evaluating proposed mergers, including by directing enforcers to focus on the structure and long-term competitive health of markets.
Once finalized, the new Merger Guidelines will influence and shape how judges understand and apply the antitrust laws in their rulings.
The 1982 Merger Guidelines have significantly influenced how the courts approach antitrust cases. Law scholar Hillary Greene found that, since the mid 1980s, the guidelines were mentioned in more than half of all judicial decisions on merger cases, and that “the guidelines were a far more significant part of the antitrust legal development process than their technical status as mere nonbinding guides for agency prosecutorial discretion would suggest.” Their influence was not limited to merger cases. The guidelines’ deference to narrow economic theories and disregard of questions of power and democracy have shaped how judges interpret and apply the antitrust laws broadly.
These new guidelines will not only provide a roadmap for the FTC and DOJ to determine which mergers should be blocked, but they will help judges better understand and apply the antitrust laws. They will help get antitrust enforcement back on track.
Strong anti-merger policy would open the way for concentrated industries to de-concentrate over time, increasing competition and bringing new businesses and vitality to communities.
Strong merger enforcement would create a fairer playing field for small businesses and allow more startups to gain a toehold, deconcentrating industries over time. This would have two major benefits: It would help industries weakened by too little competition and innovation recover their dynamism. And it would bring new businesses and vitality to many struggling rural and urban communities, including places ravaged by factory closures, shuttered stores, and the other consequences of the rampant mergers of the last four decades.
This is in fact exactly what happened in the decades after Congress passed the antimerger legislation of 1950. As a 1978 Congressional study concluded, strong merger enforcement “prevented merger-induced increases in market concentration in many industries,” which “open[ed] opportunities for deconcentration to occur.” The study highlighted examples of industries that had become less concentrated as a result of the law and its enforcement, including particular manufacturing and food processing sectors.
Key Provisions in the Draft Guidelines
- Establishing clear thresholds above which mergers should be blocked — what are known as “structural presumptions of illegality.” Under the draft guidelines, any merger is presumed illegal if it increases concentration significantly, or if the combined market share of the companies is greater than 30 percent. By banning mergers above a certain level of market concentration, the new guidelines adhere to Congress’ intent of arresting corporate concentration in its incipiency, before it can threaten to undermine competitive markets.
- Directing enforcers to block mergers that otherwise threaten to harm competition, including mergers that would eliminate head-to-head competition between two companies; increase the risk that companies would coordinate on prices; eliminate a potential new entrant to an already-concentrated industry; entrench a dominant company’s power in an industry, or extend that power to another industry; or that further a trend toward consolidation.
- Prohibiting mergers that would give a corporation enough leverage over suppliers to deprive smaller businesses of fair opportunities to compete. For too long, the antitrust agencies have ignored the problem of “buyer power” — when large retailers or other major buyers of goods can coerce suppliers into giving them unfair deals while charging their smaller competitors higher prices.
- Instructing the agencies to challenge mergers that increase concentration in labor markets, giving the merged firm the power to hold down wages, degrade working conditions, or otherwise harm workers. For decades, merger reviews have largely overlooked big corporations’ power as buyers of labor.
- Scrutinizing “vertical” mergers and other mergers that would lessen competition by giving a corporation control over products or services that its rivals rely on to compete or giving it the ability to block its rivals from accessing customers.
- Directing enforcers to closely examine a range of competition harms that can arise from mergers involving dominant online platforms.
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*Image Credit: Salon