The latest US merger guidelines mark an important codification of the approach to Antitrust under Biden. Distilled to its core points, the draft guidance instructs the DOJ and FTC to intervene against the creation of market concentration and take greater account of the impact of mergers on the workforce. The annex to the draft paper contains further points in relation to the definition of markets, namely that in dynamic, innovative sectors a static approach to definition may not be appropriate. Notwithstanding its lack of prominence, the point that a forward-looking assessment of changing market structures and unseen innovations is a significant one.
The headline item that has dominated press coverage of the guidance is the implicit statement it makes against harmful market concentrations.
Whilst there has always been a general agreement that a core aim of antitrust law is to protect consumers, the crucial question as to how this is best achieved from a policy perspective was and remains highly contested. In the US, the dominant thinking for some time supposed that competitive plurality for its own sake can be wasteful and duplicative. [1] By allowing mergers which create efficiencies in the supply of products, it was thought some of the benefits created for business would be passed on to consumers.
Yet, the merits of this theory have been strained considerably by experience. Several retrospective studies have shown that the efficiency gains created by mergers have largely been absorbed as profit. John Kwoka’s highly influential work, Mergers, Merger Control, and Remedies, analyses the price effects of a number mergers and joint ventures concludes that US enforcement has been far too lax and behavioural remedies on the whole unimpactful. The Biden administration’s promotion of multiple smaller units is thus based on an understanding that competition rather than efficiency promotes lower prices and higher quality for consumers. Not touched on in the draft guidelines but certainly factored into the analysis is the impact on innovation. From the 1970s, Nobel Prize winner Kenneth Arrow formulated a dominant view of entrepreneurship which characterises smaller companies as the makers and changers of economic life, where larger firms are typically relied upon to give these innovations scale and reach. Without the promotion of small market players, the incentives to compete on the price and quality of existing products but also create new ones are therefore substantially lessened. The new guidance is a firm statement of this gradual reformulation.
The guidelines have also been noted for its focus on workers and the impact of mergers on the market for labour. This follows on from the DOJ’s lawsuit to block the merger of Penguin Random House (itself the product of the 2013 combination of Penguin and Random House) and Simon & Schuster. on account of an anticipated effect on writers’ ability to negotiate fair compensation. The Sherman Act was also recently applied to a 2021 Supreme Court case, NCAA v. Alston, which concerned compensation of college athletes.
The third and final substantial point which can be teased from the draft guidance is a relatively new approach to market definition when considering harm to competition in innovation. Significantly, it is stated that “the Agencies may define relevant antitrust markets around the products that would result from that innovation”. This accords entirely with MOW’s view of competition in dynamic digital markets where the focus on demand and supply-side substitutability as the method for market definition does not account for rapid potential entry. Increasingly, regulators have sought to preempt future harms through a more flexible understanding of how markets are liable to change. In the UK, the CMA blocked the Meta/Giphy merger last year, in recognition of the fact that in digital markets, the barriers to implementing new competitive products in different geographies are low. In the Giphy case, the CMA’s reason for blocking the acquisition was primarily based on its discovery that Giphy had from internal documents planned to expand its ads business, which was already operating in the US to the UK. The acquisition therefore removed potential competition between Meta and Giphy. By setting out a framework for the consideration of potential competition in its assessment of mergers, the DOJ and FTC’s joint guidance promises interventionist approach particularly, within digital markets where incumbents are uniquely able to move laterally into entirely new production markets with relative ease (this inherent flexibility is, for instance, evident in Big Tech’s entry into retail banking currently being investigated by the UK FCA).
In summary, the draft guidance promotes a much stricter position towards mergers between large firms as well as large companies acquiring smaller innovative companies in lieu of competing, setting out a blueprint for more plural, competitive, and innovative markets.
[1] United States v Marine Bankcorporation is a classic case in which the government failed to block a merger between NBC and Washington Trust Bank on the grounds of potential competition.