Erik Peinert compares the changes in the draft Merger Guidelines with those of the past. He points out that the shift is a necessary measure to enhance enforcement in the current economic environment.
The release of the draft Merger Guidelines has spurred commentary and criticism, much of it focusing on how different they appear from most previous versions. The proposed Guidelines cite a large body of case law to back up the various presumptions and prohibitions on which the guidelines are based. Previous versions of the Merger Guidelines never referred to cases at all, instead relying on economic tools and models to determine if a merger was likely to harm competition. Those economic tools and methods, while still present, have been moved out of the body of the Guidelines to an appendix. A common interpretation is that this demotes economics and economic thinking in favor of legal principles, which—depending one’s perspective—is to be lauded or decried.
Putting those distinctions aside for a moment, the broader point is that after a half century of significant underenforcement, the proposed Guidelines offer a roadmap for bringing the first principles of federal antitrust laws into the 21st Century, and to tackle the monopoly problem of today.
Accordingly, in ProMarket’s symposium, several types of overlapping commentary have emerged. First, many have sparked productive discussions, aiming to strengthen, simplify, or make sense of the changes presented in the draft Merger Guidelines. Steven Salop and Jennifer Sturiale make positive suggestions to support vertical merger enforcement, and Cory Capps and Leemore Dafny discuss the importance of vertical mergers and serial acquisitions as important changes for the Guidelines to address common problems we see in the market today.
Second, others argue that the new Guidelines don’t accord with contemporary economic evidence and concepts, or that they seek to entirely reject economics as an enterprise. In this group, Herb Hovenkamp, Dennis Carlton, Carl Shapiro, and Bilal Sayyed all suggest that the Merger Guidelines have maintained their credibility in the past by adhering to up-to-date economic evidence. While the 1960s was a very different era of aggressive merger enforcement, for this group, that was a short deviation from the norm of antitrust’s near-exclusive focus on output and price effects, grounded in economic reasoning. Hovenkamp, in particular, suggests not just that most of the mid-20th century merger cases followed the up-to-date structuralist, Harvard school of economics, but also that those cases, Brown Shoe in particular, were distortions of the legislative intent. The critics argue or suggest that previous changes to the Merger Guidelines, and changes in antitrust enforcement generally, have been incremental updates based on economic learning. For the critics, the proposed Guidelines are stepping out of this mold and setting themselves up to be challenged or discredited.
Lastly, antitrust progressives correctly point out that this second group’s view of the history of the Merger Guidelines, and antitrust in the United States generally, is simply wrong. Eleanor Fox accurately notes that the 1982 revision of the Merger Guidelines was a dramatic revision and scaling back of enforcement against mergers of almost every kind. Zephyr Teachout highlights the same history of Bill Baxter rejecting a large amount of settled antitrust law in favor of Chicago school economics. As Fox and Teachout suggest, the new Guidelines are not the first to attempt to make a significant change to merger policy: the 1982 Guidelines also did that, and thus they appear as the best reference point for the new guidelines.
The 2023 draft Guidelines and the 1982 Guidelines are both paradigm shifts, but there is a key difference at the core of these Guidelines that explains why they look so different from previous iterations. Moving to be more in line with the original intent of the Clayton Act and its 1950 amendments, this new version is aimed at significantly increasing enforcement against anticompetitive mergers. Many previous versions of the Guidelines were, at most, aiming to make enforcement more efficient or marginally more aggressive, and at worst—such as in 1982—aiming to scale back enforcement dramatically.
This is not a trivial difference, and it is a question of rising to the historic moment. The many critics of the Guidelines emphasize points about the reasonableness of the economic models, the flaws in structural presumptions, or whether old Supreme Court cases really apply and have relevance. In the abstract, these are all fair questions. However, they also imply that we live in a well-functioning, competitive economy that has been effectively governed by antitrust enforcers in recent decades. To state some oft-repeated but important points: most industries have become more concentrated in recent decades, markups have risen dramatically since the early 1980s (exactly when the Merger Guidelines were revised and antitrust policy scaled back), the labor share of income has fallen, technological progress has slowed down, business startup rates have collapsed, and large firms have been contributing less to investment and growth. The concentration of common ownership has exacerbated many of these problems further, as have the thousands of illegal mergers flying under the radar of the merger notification system. In the past decade in particular, private equity firms have been rolling up industry after industry in a ploy for market power.
The Merger Guidelines should reflect the economy that we have and the mistakes that have been made in arriving here. The evidence on the scale of the problem is in, and the Guidelines should be amended to a degree that appreciates the scale of the problem. It can seem disconnected from the realities and problems we face today to focus so much on questions like: whether the Guidelines deviate from the properly stated, ultimate purpose of the antitrust laws, whether the tools to assess a merger are appropriately effects-based, or whether certain legal precedents rely on out-of-date economic theory. These questions and frames fit within a policy and enforcement arrangement that has not been up to the task for a generation, and certainly not today.
Which brings us back to the issue of the new Guidelines: how they relate to the previous paradigm shift in 1982 and why the two look so different. Whereas today’s reformers are aiming to significantly crack down on M&A activity to rein in the sprawling monopoly problem that characterizes most American markets today, in 1982, Assistant Attorney General Bill Baxter was looking to significantly limit the scope of antitrust enforcement, informed by law and economics theories originating in the Chicago school. Whereas the Guidelines were also revised in 1984, 1992, and 2010, for example, those were all broadly perceived as minor tweaks to the existing framework.
But merger enforcement is not simply a dial that can be moved up or down with different Guidelines as enforcers prefer. Changing the Guidelines to enforce less and changing them to enforce more are categorically different tasks.
To scale back enforcement in the 1980s, the antitrust agencies did not need to go before a court and argue that more mergers should be waived through. Rather, Baxter simply needed to stop bringing cases, as his antitrust division did even before the Guidelines were revised. As an overwhelming majority of merger challenges are brought by the government, the policy change was not to win or lose cases, but rather to prevent those cases from existing in the first place. And in the rare cases where private or state plaintiffs brought some of the cases that the Department of Justice declined, and federal courts blocked the mergers, the Reagan administration was internally upset.
Accordingly, Baxter and the Reagan administration were able to scale back the 1982 Guidelines based primarily on economic theory rather than law. Even if courts viewed that economic reasoning as lacking, the question was never put to them, because the big merger challenges were not filed in the first instance. That being said, with the number of business-friendly Nixon and Reagan judicial appointees populating the federal judiciary, the new, scaled back Guidelines were slowly incorporated into the law over the ensuing decades.
When critics of the proposed Guidelines assail them for being out of line with the law, pointing to previous iterations of the Guidelines as authoritative documents that courts took seriously, and which were based in reasonable legal standards and economic evidence, this is a distortion of what happened. Not only were the 1982 Guidelines wildly out of step with the law at the time—and as I’ve previously written, the Reagan enforcers knew it—but they didn’t even need to prove their case.
By contrast, to strengthen enforcement as today’s reformers are seeking to do, the DOJ and Federal Trade Commission need to investigate mergers, put them before a court, and affirmatively persuade a court to block them. The requirements of the task are simply far different and far greater. The bar is higher, and therefore the Guidelines need to rely on existing cases and jurisprudence to convince a judge to rule in the government’s favor, after decades of underenforcement. Economic theory can and will inform the facts of these cases – after all, the new Guidelines still incorporate all of the economic tools used by the agencies in the past, like the potential monopolist test, SSNIP test, various HHI thresholds, and others, as core tools that the Agencies will use to assess a merger. But the focus appears to be on what will educate, inform, and convince judges, to clarify the standards and requirements for what cases enforcers bring, so that judges will continue to view them as a persuasive and useful “benchmark of legality.”
But to emphasize, irrespective of one’s ideological position on economic modeling versus a focus on statutory intent, the needs of the moment are for stronger enforcement. Harmful, large mergers need to be blocked at far higher rates than they have been in recent decades. Growing categories of mergers, like serial acquisitions and many types of vertical mergers, need to be challenged and blocked at far higher rates than they have been.
For more enforcement to fight today’s crisis of monopoly, different kinds of Guidelines are needed: ones to enhance the government’s ability to deter using the law as it stands. It misses the point to insist on a narrow faith in certain categories of economic models, at the expense of existing and controlling antitrust jurisprudence, to save or condemn the proposed Guidelines. Economic theory may have sufficed to scale back enforcement in 1982, but it is hard to imagine that marginal updates to economic thinking, on their own, can rise to the occasion today.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
