In his recent article, John Kwoka accepts the antitrust community’s general opinion that Procter & Gamble requires courts and the antitrust agencies to weigh plaintiff rebuttals that a merger can produce extraordinary efficiencies even if it reduces competition. Jerry Cayford argues that this is an inaccurate reading of the Supreme Court’s decision, and it has hampered enforcement for decades.
Professor John Kwoka’s recent article in ProMarket, “The Next Administration Must Finish the Merger Guidelines Revision,” offers a practical way for the Merger Guidelines to limit costly efficiency rebuttals when a merger will reduce competition. However, I would like to suggest that his piece would have been even stronger had he not endorsed a widely accepted but mistaken reading of the Supreme Court’s Federal Trade Commission v. Procter & Gamble (1967) decision. In a nutshell, Kwoka misreads the Supreme Court’s reference to “balance” in that case: it refers to a balance between competition and efficiency that Congress has struck in antitrust legislation; it is not a balance that courts are empowered to strike in individual merger cases. Overlooking this important distinction has encouraged plaintiff’s efficiency rebuttals and hamstrung antitrust enforcement for decades.
Kwoka quotes the pertinent passage from Procter & Gamble and then explains it:
“Possible economies cannot be used as a defense to illegality. Congress was aware [when it enacted the Clayton Act] that some mergers which lessen competition may also result in economies, but it struck the balance in favor of protecting competition.” This quote might appear to declare economies, or efficiencies, as essentially irrelevant to merger analysis, and critics of Procter & Gamble have interpreted this statement as prohibiting all efficiency claims. But the Court’s immediate endorsement of a “balance in favor of protecting competition” [emphasis added] has generally, and quite reasonably, been viewed as allowing for cost savings that are large enough to more than fully offset competitive harms from a merger [emphasis added by Kwoka].
The Procter & Gamble passage quoted, whether reading it as it “might appear” or read thoroughly in context, means the same thing: the “balance” the Supreme Court refers to here is a balance Congress has already struck, a balance of the pros and cons of losing some efficiency by always protecting competition. It does not empower courts to balance competition and efficiency in individual cases. That is, the people Kwoka calls “critics of Procter & Gamble” are entirely correct that Procter & Gamble prohibits efficiency claims. Kwoka’s idea that the Supreme Court means to balance “cost savings” against “competitive harms” may be how an efficiency-minded antitrust community “generally viewed” the case, but it is not a “reasonable” interpretation. On the contrary, it is an erroneous reading of Procter & Gamble that has long burdened antitrust enforcement with prohibitively complex economic analyses.
That Procter & Gamble means this passage exactly as it “might appear” (i.e. as saying Congress has prohibited balancing competition against efficiency) is amply demonstrated. First, in the case syllabus, the Court summarizes that point even more clearly: “(c) Potential economies cannot be used as a defense to illegality, as Congress struck the balance in favor of protecting competition.”
Second, in the passage Kwoka quotes, the Court cites for corroboration Brown Shoe v. United States (1962) at page 344, which says, “Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision.” Procter & Gamble elsewhere cites Brown Shoe at page 323, which says that Congress was concerned with the practical and definite reality of concentrated markets, not with predictions about the future effects (efficiencies) that such concentration might have: “Statutes existed for dealing with clear-cut menaces to competition; no statute was sought for dealing with ephemeral possibilities. Mergers with a probable anticompetitive effect were to be proscribed by this Act” (page 323).
Third, Justice John Marshall Harlan’s concurrence in Procter & Gamble accuses the majority of taking exactly the black-and-white position they do take: that a “mere summary” will do to identify anticompetitive effects that “can easily be seen.” Harlan calls this “a kind of res ipsa loquitur approach to antitrust cases” (meaning “the thing speaks for itself”; quotations are from the first paragraph of Harlan’s concurrence, pages 581-2). He accuses the majority of concluding that Congress has a priori favored competition and prohibited balancing it against efficiency (page 587). Harlan is right: that is exactly the majority’s judgment in Procter & Gamble.
Now, Harlan disagrees with the majority; he thinks that courts should balance competition against efficiency. It is telling that he mostly cites academic work by economists rather than court precedent, but whatever his inspirations, he advocates, as Kwoka puts it, “allowing for cost savings that are large enough to more than fully offset competitive harms from a merger.” This is Harlan’s position, and it has become, as Kwoka says, “current policy,” but it is not the position of the Court majority in Procter & Gamble, as is clear, first, from their own words, second, from their citations to Brown Shoe, and, third, from Harlan’s disagreement with the majority.
Kwoka is not alone in erroneously thinking Procter & Gamble permits courts to weigh efficiency claims against competition. Later in the article, Kwoka describes a lower court in 2020 “confessing its confusion” at what it calls “the trend among lower courts” (in apparent contradiction of Procter & Gamble) “to recognize or at least assume that evidence of efficiencies may rebut the presumption that a merger’s effects will be anticompetitive.” Kwoka, in agreement with the trend among these lower courts, again calls this a reasonable interpretation of Supreme Court opinion.
Kwoka’s main point is to help the Federal Trade Commission revise its Merger Guidelines to save it from routinely having to do costly in-depth economic analyses. Perhaps there are compelling reasons to think that “extraordinary efficiencies,” as Kwoka puts it, will inescapably require in-depth assessment. This is “current policy,” after all, so the government’s focus might as well be on how to identify extraordinary cases and thereby avoid ordinary ones clogging the system. Kwoka suggests a three-stage process to identify these extraordinary cases, and that would surely be a valuable addition to the Merger Guidelines. But it is inaccurate (and, perhaps, counterproductive to his article’s goals) to claim that in Procter & Gamble the Supreme Court inflicted on us a requirement to consider such efficiencies, ordinary or extraordinary. It did not. And the prominence of Procter & Gamble, after so many decades, suggests no other precedent has, either. If no Supreme Court decision says extraordinary efficiencies deserve a special hearing, perhaps we should look more carefully at why (and whether) the FTC should accept the obligation to give them that hearing.
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