Cristina Caffarra discusses the animating principles and profound changes brought about by the new draft Merger Guidelines, and argues they will resonate with policymakers and enforcers in other jurisdictions.
The Federal Trade Commission and Department of Justice Antitrust Division (the U.S. Agencies) issued their long-awaited draft Merger Guidelines on July 19. Since then, the Agencies’ chiefs and senior staff have been busy disseminating and evangelizing them in multiple fora. The impact has been a major meltdown of the defense bar and grave upset of the antitrust elite of (sometimes consulting) academics and scholars—about undoing all established notions that concentration does not mean market power, “abandoning economics” tout court, relying on made-up presumptions that will go nowhere with judges, “abandoning the focus on market power,” and rolling back the previous version that had “achieved widespread acceptance and credibility”: in short, moving away from “the way we have been doing things”—which was evidently just right.
I will not comment on U.S. legal references, case law, and actual precedent. However, as U.S. Guidelines always end up significantly influencing what other jurisdictions eventually do, it is important for those outside the U.S. to understand what motivates them and place them in context. I believe their message will resonate strongly with many in Europe.
The first observation is that yes, the draft Guidelines represent a major break from “the way we have been doing things”— by which I mean not just the letter of the prior 2010 Guidelines, and every version of the Guidelines going back to 1982; but also the practice of merger control as I have experienced it (as an advisor mostly in Europe, but with an inside view of the assessment of many deals also in the U.S.). The change is generally in the direction of more enforcement, but also specifically a pushback on multiple “precepts” which had come to stand for “the way things are done.” The overarching sentiment of commentators from the antitrust establishment is that because “the way things are done” is based on “robust economics,” a move away from that entrenched orthodoxy must therefore be just “political.”
But the claim that the 2010 version “present[ed] a balanced yet pro-enforcement view … applying widely-accepted economic principles [and] acknowledg[ing] that many mergers are competitively neutral or beneficial” is not a neutral view, either. It is a strong value judgement colored by one’s prior that we had reached an equilibrium where we were doing everything pretty much right.
The Guidelines are making big changes for two reasons. First, because we were not “doing things just right”: what is regarded as “the orthodoxy” is itself the product of a specific ideology which has become dominant over the past 40 years and is being questioned. And second, because the world has changed. They reflect a conscious effort to overcome neoliberal thinking, and the economic philosophy that had informed the past. They break from “orthodox” practice (and the standard playbook of advocacy and supporting economic analyses we are all used to) as a deliberate and calculated move, because that playbook had been based on deeply ideological premises, and daily practice had been sliding ever more towards a pro-defendant norm. The baseline had become pretty much that mergers are mostly benign or pro-competitive, as the resources of economic consultants have been directed at coming up with ever more exculpatory narratives.
In addition, the world has not stood still, and the assessment of a deal cannot be the same now as 10-20 years ago. Why is nobody saying this? Is merger control revealed religious text? Is it immanent? Independent of the state of the world? Independent of the level of concentration in markets? Have we reached eternal wisdom? Isn’t the fact that the status quo is defended by merging parties and advisors a bit of a giveaway?
The comment that “as a society mergers are a good way of reallocating assets to more productive uses” is fine in principle, but in practice things have not worked out that way in many cases. Markets have systematically consolidated over the past decades, with assets being reallocated to extract rents and uncertain benefits materializing for consumers. The new Guidelines must be understood as reflecting a different and evolving zeitgeist. The context in which we do enforcement matters. If in the last 20 years markets have become more concentrated, then the starting point should be different. It’s not Groundhog Day, each merger starting anew. As concentration has increased, the potential concerns around further consolidation become more acute.
Efficiency as a goal has also died. The political economy of mergers has changed. In a world post-financial crisis, post-Covid, post-neoliberalism, post-hyper trade liberalization, post-Ukrainian invasion, post-energy crisis, post-climate crisis, how can we argue that “efficiency” (whatever that means) is the goal? There is still a narrow IO church clinging to this view, but there is a broad rethink underway of the role of antitrust in a polycrisis world in which resilience, greener investment, innovation, greater opportunities and mobility for workers and ultimately democracy are the important goals. Industrial policy is no longer synonymous just with grubby protectionism and national champions, and trade policy is no longer about hyper liberalization and offshoring production to the cheapest places. There is a major rethink underway which is necessary and inevitable. National Security advisor Jake Sullivan said in his April 27 speech that “in a world being transformed by that clean energy transition, by dynamic emerging economies, by a quest for supply chain resilience—by digitization, by artificial intelligence, and by a revolution in biotechnology—the game is not the same,” and set out how trade and industrial policy need to be used to promote democracy, liberty and prosperity for citizens and workers, in contrast with the pursuit of efficiency. Ambassador Katherine Tai’s June 15 speech is even clearer on how the U.S. will use notions of competition and resiliency— not efficiency— to shape trade policy (“prioritizing and pursuing the consumer welfare standard in competition policy has led to consolidation and unchecked dominance in our domestic market, which has stifled competition and diminished economic liberty for our citizens and workers (…). Our focus has shifted from liberalization and the pursuit of efficiency and low costs—at any cost—to raising standards, building resiliency, driving sustainability, and fostering more inclusive prosperity at home and abroad”).
The standard response of the antitrust church to this debate is that protecting low prices and greater output is always good, and polluting this goal with other objectives means we don’t know what we are doing anymore. But no one is advocating a scientific trade-off between disparate goals. Pretending that we “the economists” have the tools to scientifically evaluate price and output effects when we predominantly “cooked” useful analyses for our clients for decades is very rich. Note this is not to say economic logic and intuition have no place: but as practiced at the coal face of private consulting, it is hardly reliable science.
It is clear that the U.S. Agencies’ leadership and senior staff are deliberately sending this message in the draft Guidelines: the goals are different and the world has changed, not for the better, with decades of merger sprees which have consolidated markets, stripped assets and not delivered for consumers, only for advisers and Wall Street. Antitrust needs to reflect this.
So what are the main updates? My shortlist:
Guideline 1 (re)introduces structural presumptions. Commentators have been most unhappy about this on grounds of the established post-Chicago wisdom that “more concentration does not necessarily mean more market power,” and argued this needs to be qualified by saying explicitly that more concentration is only bad if it leads to adverse price and output effects. Yes, we have all come out of a prior world (including in Europe) where we had structural presumptions, and we ripped them up under the influence of Chicago because of course it is not true that more concentration will necessarily always mean materially higher prices and lower output. If we could trust efficiency claims, then sure, maybe not ALL deals which increase concentration increase market power. But, more concentration means fewer rivalrous assets, fewer options, less competitive pressure by definition. No mainstream economic model predicts more concentration leads to lower prices unless one factors in efficiencies. But are efficiency claims credible? If you have ever been inside a management consultant deck or a deal model claiming efficiencies, you will know what these claims are made of. And critically, IF markets have become “highly” concentrated, then the first-order effect of a deal which “significantly” increases concentration further must be fewer competing assets and less of a competitive race. Received wisdom has become that bringing more assets under the same ownership may well increase competition. What if it does not? Have we not earned the right to, at least partially, slow that asset roll up race? To turn the dial a little bit the other way and see what happens? We need more structuralism and less exceptionalism.
Guideline 4 gives an explicit role to “potential entry” in a concentrated market and says there may be a problem if the deal pre-empts this entry (which would deconcentrate a market), or eliminates the perceived threat of entry. This has also discombobulated commentators who noted that “buying a firm to enter a new market often doesn’t eliminate existing competition and indeed can facilitate competition.” This refers to the scenario in which firm A buys firm B and B is an entrant or a potential entrant into a new market where A is not present. Well, if A has no plan whatsoever and buys B to expand into a completely new market, perhaps this can be the case, assuming we are not looking at ecosystem concerns (which are about firms already large in one or more spaces entrenching themselves by buying assets in another space, more below). But what about scenarios in which A had already started internal work on entering the new market and buys B instead? And then kills its own effort? This is the “reverse killer acquisition” scenario that was part of the concern in Meta/Within, and is live in Adobe/Figma: the concern the buyer had started developing its own version of the product but abandoned the effort in favor of acquiring the target. Whatever one might think of this possibility, buying out an entrant may snuff out future innovation efforts, including from the buyer, which needs to be looked at. It’s only right to warn parties this is going to be on the list of things the Agencies will consider.
Guidelines 5 and 6 are both about a deal that confers the control of important inputs. Whether vertical or conglomerate, this is another area where it is important to be clear that we are moving away from the presumption that deals are in the first instance pro-competitive. This is the question of whether assets one has acquired can be used as chokepoints to undermine rivals’ ability to compete or develop new markets is a real possibility in many cases, and we have gone far too far in the presumption that for instance “Elimination of Double Marginalisation” is a thing which we need to push as a positive benefit of a deal. Steve Salop and Jennifer Sturiale’s comments make all of these points well.
Guideline 7 talks about mergers that “are neither strictly horizontal nor vertical” and may “entrench a dominant position” or “extend a dominant position in new markets.” This is ecosystem territory, about time. It is how many of these deals present themselves. So, we need to look beyond the traditional notion that market power can be created only if it is “leveraged” via a well-defined mechanism from A to B. Multi-product digital giants do not think “market by market” but have broad vision and fungible assets and capabilities that can be deployed across markets: AI, machine-learning, cloud, data, content, software, user bases. They often use terminology like “flywheel” to suggest these assets create virtuous cycles—i.e. they accelerate adoption and growth. As a result, market power arises not from a product position in a given market, but as a function of controlling combination of “levers ” (assets) and using them to undermine challenges. Then new acquisitions need to be assessed for how they fit in and contribute to the network of activities, assets, and capabilities. Can those “amplify” the effects of a deal in some way? Guideline 7 is saying “we need to look at all this”—indeed we do.
Guideline 9 is about serial acquisitions. How many markets have seen progressive asset consolidations with incremental transactions? Not just in digital, but chemicals, agrochemicals, pharmaceuticals, telecoms, and many more. Again, how can we be looking at them through the same lens each time, from the same starting point? Guidelines 11 and 12 are about labor market effects and partial ownership/minority interest, respectively. Both entirely deserve being called out explicitly as standalone concerns.
There’s room for improvement also. Where the Guidelines still fall short is in accounting fully for the advent of the internet and the digitization of life and commerce. There is nothing much about data or the shift of communications from wires to online apps. The definition of platforms seems years behind the times, and in many ways Guidance 10 on multisided platforms is a rehash of points that have `been around a long time (network effects, that usual list).
There is also a tension underneath it all: while making a big break with efficiency as the goal, the Guidelines seem anxious to reassure economists: “don’t worry, we don’t want to jettison economics,” and “economic orthodoxy” is preserved at various places in the main text and in Appendix 2. When so much bad economics has been rolled out in case after case in the name of efficiency and consumer welfare, which the Guidelines are distancing themselves from, why preserve such a big contradiction between goal and means? I wish Chief Economists Aviv Nevo for the FTC and Susan Athey for the DOJ did not have to spend so many calories reassuring the traditional wing in multiple events, telling the frowning grandees that it’s all in there, we haven’t thrown anything away. It seems to me this is progress, and good riddance.
Back to the beginning: how is this going to matter outside the U.S.? Other jurisdictions have their own merger control guidelines, some very dated. The tone and posture of the U.S. Guidelines always matter and reverberate across jurisdictions. The 2010 Guidelines saw Europeans eventually come on board, for instance, with the whole paraphernalia of Upward Price Pressure indices; before that was the replacement of our ordoliberal tradition and presumptions with perceived Chicago innovation. These new draft Guidelines are an especially strong signal that the assessment of mergers is part of an economic policy toolkit that should not be narrow and self-referential, immanent and unchanging, but subject to re-evaluation. This message strongly resonates in Europe with many: the recent controversy in the European Parliament around the appointment of a new Chief Economist at DG Competition, the distancing of multiple Commissioners and officials (including DG Comp’s) from the outgoing Chief Economist’s statements on industrial policy vs. efficiency invite a debate on antitrust enforcement that is not technocratic and insular, and away from obscure “consumer welfare” rules only economists can opine about. In a polycrisis world it would be strange and bizarre if only competition policy remained a haven immune from deep rethinking and reconsideration.
Disclosure: Cristina Caffarra has advised multiple clients over the last five years, several with a potential financial interest in the Guidelines–including Microsoft, Amazon and Apple, among others. She also advised the FTC in the aforementioned Meta/Within case. The views expressed here are her own and not shared by past and recent clients.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
