Negative Reflections on the Positive Case for the New Proposed Merger Guidelines

The government antitrust enforcers have two institutional homes: the Antitrust Division of the US Department of Justice and the Federal Trade Commission.

The Biden administration team in both places has shown a strong desire to overturn antitrust law as it has evolved in 50 years or so, and to return to the earlier tradition. One manifestation of this change is a proposed revision of what are called the Merger Guidelines. The guidelines started back in 1968, and have been updated a number of times since then, including in 1982, 1984, 1992, 1997, 2010, and 2020.

I’ve commented on this blog a few times about the Biden antitrust team, the new merger guidelines, and the historical changes in merger law over time. For those who are want to dig deeper, some of my more recent posts include:

• “Antitrust and the Consumer Welfare Goal” 

• “Complexifying Antitrust”

• “Antitrust: Dilatancy Before the Earthquake?” 

• “Initial Reactions to the Amazon Antitrust Case” 

• “Did Antitrust Really Used to Be So Tough?”

• “The AT&T Merger with Time Warner: Another Follow-up” 

• “After that Big Merger, What Happened?” 

The ProMarket center at the University of Chicago has been collecting readable and reasonably short essays on the proposed new Merger Guidelines from a dozen experts in the field, with a mixture of pro, con, and in-between reactions. If you want to spend some time getting an overview of the arguments on all sides, the collection is a good place to start. (I lean to the “con” side.)

Here, I won’t try to review essays by a dozen people, some of them multi-part. Instead, I’ll focus on an essay by an advocate of the proposed new guidelines, Zephyr Teachout, whose essay is titled “The Proposed Merger Guidelines Represent a Reassertion of Law over Ideology” (August 16, 2023). As the title suggests, the case for the merger guidelines is that the “ideology” of economics has become too central to the administration of antitrust law, and that we need to return to the “law.” Here’s a representative quotation from the Teachout essay.

First, these Guidelines represent a return to the text of the Clayton Act. Section 7 of the Clayton Act prohibits mergers and acquisitions where “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create monopoly.” As the new Guidelines point out, the language is explicitly prophylactic, and preventative. Section 7 is a malum prohibitum instead of a malum in se law. The Clayton Act instructs the Agencies to stop that which might substantially lessen competition, not merely that which definitively will substantially lessen competition (let alone that which definitely will increase prices). …

Unlike the 1982 Guidelines, which subordinated the Clayton Act’s goals and case law to the ideology of efficiency and consumer welfare, the draft Guidelines are tethered to case law. … [T]he Guidelines give permission to use common sense and not require every bit of logic in a merger decision be derived from high-priced economic experts. For instance, serial acquisitions can be a threat to competition, and mergers between competitors can be a threat to competition. Again, these common sense assertions should not need expression, but the legal part of the antitrust legal community has become so intimidated by the control economists have exercised over the last 40 years—an intimidation that started with Baxter’s aggressive use of economic experts to supersede lawyers’ decisions in the 1980s. Therefore, the permission to be lawyers, use logic, and treat antitrust law like other laws, where the project is primarily legal, is important. The Guidelines reject the extra-legal policy of giving legal decisions to another field of experts. 

I like the bluntness of Teachout’s discussion. What she means by “ideology” are basic ideas of economics like lower prices, consumer welfare, and efficiency. She is explicitly arguing that antitrust enforcement agencies should not need to concern themselves with whether a merger will lead to higher or lower prices, or improvements in consumer welfare, or improved efficiency. Instead, antitrust should be able to block any mergers or acquisitions that tend limit “competition,” whether the effects happen in the present or only present a future risk and without consideration of whether a merger might benefit consumers or intensify competition, but just because courts should hold such actions to be presumptively bad.

Instead of looking at arguments of “high-priced economic experts,” Teachout argues, such decisions should be governed by the “common sense assertions [that] should not need expression” of lawyers. If faced with a choice between high-priced economic experts and common sense assertions of lawyers, I would beg Divine Providence on my knees for a third choice. But at least the economic experts, on both sides, offer reasons for their conclusions. In a legal context, saying it’s just common sense assertions is equivalent to saying “I don’t want or need to explain my reasons.”

It is not clear what a court is supposed to do when the common-sense assertions of the lawyers for the antitrust enforcers who want to block a merger conflict with the common-sense assertions of the lawyers for the companies that want to carry out a merger. Once you have ruled out economic arguments about the likelihood that consumers will benefit from a merger, or not, it’s not clear what’s left.

There is an unintentionally hilarious moment later in Teachout’s essay, when she argues: “The draft Guidelines indicate the Agencies will use lower market concentration thresholds to trigger review. This change is long overdue, based on the evidence; see the great work by economist John Kwoka.” I happen to be an admirer of Kwoka’s work. But apparently Teachout is perfectly willing to use economic interpretations of what concentration thresholds are appropriate, as long as it fits her personal common sense, but we should ignore any high-priced economic experts with a different view.

It’s perhaps useful to note here that the Merger Guidelines do not make the law. Merger law is determined by how courts interpret statutes and earlier cases. The virtue of earlier Merger Guidelines was that they tried to offer a fair-minded overview of the existing law. Indeed, in most modern antitrust cases, both sides could start by agreeing that the Merger Guidelines were a fair statement of the existing law–and then start arguing. The proposed new version of these guidelines are instead an argumentative case for what the writer would prefer the law to be: the proposed guidelines would be challenged in court, and if the courts stick to existing precedents, the new guidelines would lose. Thus, Teachout and other supporters argue that the proposed new Merger Guideline are the true law, from before it was corrupted.

There’s a certain amount of myth-making going on in this case for new Merger Guidelines. As Teachout tells the story, everything was basically fine in antitrust law until the Reagan-era antitrust authorities followed a limited Chicago-school “ideology” and started emphasizing whether a merger leads to lower prices, consumer welfare, efficiency, and other ideologies. Thus, the proposed new guidelines quote various antitrust cases and claim to be the true inheritors of the law. But as Teachout surely knows, this intellectual history is oversimplified to the point of caricature.

Concerns about how best to interpret antitrust law, and how to combine legal and economic insights, go back for decades–and have not been particularly partisan. For example there was an American Bar Association report on these issues back in 1956. Legal critics of the incoherencies of antitrust law as it existed back in the post-World War II decades include academics from Harvard, Yale, Columbia, Michigan, and many other places as well as the University of Chicago. The most well-known legal treatise on antitrust, continuing through multiple editions up to the present day, started with Philip Areeda of Harvard who was later joined as a co-author by Herbert Hovenkamp of the University of Pennsylvania. Moreover, in the last half-century, plenty of Democratic-identified judges, lawyers, and economists have been overall just fine with the emerging and evolving synthesis of law and economics–even though they have disagreements about specific cases.

The notion that a few rebel economists and a Reagan-era antitrust administrator hijacked the mainstream consensus–and everyone else has just gone along with that hijacking for 40 years–is incorrect. Indeed, the new proposed Merger Guidelines do cite lots of cases, but they are old cases that have not reflected actual case law for decades now.

There is also an implicit assertion that merger law as it was enforced back in the 1950s and 1960s was especially tough, and since then has become too lenient. This claim would have struck writers of the 1950s and 1960s as ridiculous. As I wrote in an earlier post:

If one looks back to the Fortune 500 list of largest companies in, say, 1960, you find the US auto industry dominated by General Motors (#1 overall on the list), Ford (#3) and Chrysler (#9). The US steel industry is dominated by US Steel (#5) and Bethlehem Steel (#13). The US oil industry was dominated by Exxon (#2), Mobil (#6), Gulf Oil (#7), and Texaco (#8). Government-regulated AT&T (#11) provided nationwide monopoly phone service. General Electric (#4) dominated in a swath of industries including appliances, engines, and turbines, while DuPont (#12) dominated in chemicals. Such examples could easily be multiplied, as some social critics pointed out. As one prominent example, John Kenneth Galbraith published a best-seller called The New Industrial State in 1967, which basically argued that the United was no longer a free market economy, but instead had become dominated by large corporations who used advertising to determine consumer demand.

The idea that antitrust law was aggressively going after big companies in the 1950 and 1960s doesn’t match the facts. Indeed, many of the complaints about antitrust decisions at the time arose when the antitrust regulators went after mergers of small local grocery chains or small companies that made shoes. The legal reasoning was precisely what Teachout advocates above: maybe these mergers themselves wouldn’t lead to less competition, but additional future mergers might do so. If two companies in the 1960s wanted to merge because they thought it would bring greater choices and lower prices for consumers, the courts would typically rule that this outcome was bad for “competition”–because if some firms offered consumers lower prices and more choices, other firms would find it harder to compete. Conversely, in the mid-1980s, under the new and supposedly more lenient antitrust rules, the national phone monopoly of AT&T was broken up.

There are plenty of antitrust issues of concern in the modern economy. As I have pointed out in earlier posts, many of the current issues in antitrust are about digital companies: Amazon, Google, Facebook, Netflix, Apple, and others. Other topics are about large retailers like WalMart, Target, and Costco. Still other topics are about mergers in local areas: for example, if a small metro area has only two hospitals, and they propose a merger, how will that affect both prices to consumers and wages for health care workers in that area? A prominent case a few years ago found a group of Silicon Valley companies guilty of anti-competitive behavior for agreeing not to poach each other’s workers. Another set of topics involves how to make sure that when drug patents expire, generic drugs have a fair opportunity to compete. Another topic is about tech companies that pile up a “thicket” of patents, with new patents continually replacing those that expire, as a way of holding off new competitors. Other topics involve improving the number of competitors that consumers face when choosing home internet service, or a smartphone.

Advocates of the proposed new guidelines like to phrase their position as being for increased merger enforcement, and thus to imply that opposing the proposed guidelines is just being against greater enforcement. But as other comments in the ProMarket symposium illustrate, many (economist) authors view themselves as very much in favor of tougher antitrust enforcement in many of the situations I just described. They just think that the legal aspects of antitrust decisions should be interpreted through a lens of economic reasoning, not the “common sense assertions” of lawyers.