The rule of law is central to a just and efficient legal system. The federal antitrust enforcement agencies — the Department of Justice and Federal Trade Commission — have promoted the rule of law through merger guidelines. But they do not do so in the new draft merger guidelines, released on July 19.
Robert A. Stein explained that, in particular, “The law must be known and predictable so that persons will know the consequences of their actions.” Antitrust law on mergers has been known and predictable largely due to agency guidelines.
Past agency guidelines did a reasonable job of identifying which mergers were challenged and, critically, which mergers were not challenged. The draft merger guidelines released for public comment say less about which mergers will be challenged. Most importantly, they say almost nothing about which mergers will not be challenged.
All incarnations of the merger guidelines since 1982 (1982, 1984, 1992, 1997 and 2010), all of which I have worked on, articulated principles that formed the foundation of merger enforcement, but these principles are absent from the new draft merger guidelines. Nor does the draft articulate new principles. This omission raises significant questions as to what is animating merger enforcement.
Since 1982, guidelines have assured that the agencies avoid unnecessary interference with mergers that are not anticompetitive. Since 1984, merger guidelines have observed that many mergers enhance efficiency, promote competition and benefit consumers. The draft guidelines display indifference to interference with lawful, beneficial mergers.
Since 1982, guidelines have articulated a “unifying theme” that merger enforcement is directed at the creation of market power. The draft guidelines articulate no unifying theme, and the portion describing competitive concerns does not mention market power.
Since 1982, guidelines have articulated four principles governing the delineation of the relevant market in which a proposed merger is assessed. None is fully intact in the recent draft. One has been modified in a manner that permits mischief, two have been abandoned and the fourth is no longer stated clearly. Henceforth, the size and shape of relevant markets will be determined by fiat.
The opening sentence of the draft merger guidelines states that they explain how the agencies “identify potentially illegal mergers.” But the agencies do not challenge most “potentially illegal” mergers, and the draft merger guidelines do not describe how the agencies winnow the “potentially illegal” mergers down to the relatively few mergers that are challenged.
The press release accompanying the draft merger guidelines declared that one of their “core goals” was to “reflect the law as written by Congress and interpreted by the highest courts.” But the draft is in tension with the text of the governing statute and its interpretation by the highest courts.
The anti-merger law prohibits mergers when the effect “may be substantially to lessen competition.” Only one of eight “frameworks” (bases of potential illegality) in the draft incorporates this test, while the others suggest that the agencies are unconcerned with the substantiality of any lessening of competition.
The draft guidelines contain more than 100 case law citations, with more than three-quarters of the citations predating the 1982 merger guidelines. The Supreme Court last decided the antitrust merits of a merger case in 1975. Antitrust law has evolved considerably since then, limiting the relevance of Supreme Court merger decisions.
The draft merger guidelines lower the increase in market concentration necessary to trigger presumptive illegality and cite a string of cases assertedly consistent with this more aggressive stance. However, the increase in concentration in the cited cases ranged from five to 50 times the threshold set out by the draft.
The draft devotes considerable attention to mergers between market incumbents and potential entrants. However, a firm on the verge of entering the relevant market is treated as an incumbent. In other situations, courts demand proof that entry is likely absent from the merger or that the firm already palpably affects competition. The draft guidelines threaten merger challenges when neither showing can be made.
Past merger guidelines promoted the rule of law by articulating controlling principles and consistent standards to minimize uncertainty. The recent draft merger guidelines do not do so and do not promote the rule of law. They indicate that the federal antitrust enforcement agencies hope instead to instill fear.
Gregory J. Werden retired in 2019 from his position as senior economic counsel, Antitrust Division, Department of Justice and is a now visiting fellow at the Mercatus Center at George Mason University.