AAI Issues Statement on Mergers and Concentration Critical of Current Policies

For release February 10, 2004Contact: Albert A. Foer, 202-276-6002

The American Antitrust Institute ("AAI") has issued a Statement on Horizontal Merger Analysis and the Role of Concentration in the Merger Guidelines. The Statement was presented to the Federal Trade Commission and the U.S. Department of Justice in preparation for their joint workshop on merger enforcement scheduled for February 17-19. The AAI Statement, by its President, Albert A. Foer, attempts to present a crystallization of a “post-Chicago” position on several important points concerning current merger enforcement. Although the Statement reflects extensive discussion and debate within the AAI’s Advisory Board during the past nine months, it should not be taken to represent the views of any individual member. Among the major points in the Statement:

Concentration. Recent pronouncements by the government may indicate a movement away from negative presumptions about the effects of exceptionally large mergers in highly concentrated markets. The Statement says that the anti-mergers laws, relevant Supreme Court decisions, and sound public policy considerations all mandate that concentration should continue to play an important role in merger enforcement. Large increases in concentration to very high levels of market concentration should lead to a rebuttable presumption that a merger is likely to lead to anticompetitive conduct.

Incipiency. Mergers should be evaluated under the incipiency doctrine, a relatively strict legal standard established by the Clayton Act. Although the Sherman Act blocks only those mergers likely to lead to monopoly power or the dangerous probability of monopoly power, the Clayton Act is designed to block mergers the effect of which "may be substantially to lessen competition or to tend to create a monopoly." This means that increases in concentration should be prohibited even if they might not be quite large enough or certainly anticompetitive to constitute a Sherman Act violation. Recent pronouncements by the government reflect skepticism about policies employing the incipiency doctrine.

Efficiency. National merger policy today rests upon the assumption that mergers usually produce important efficiencies. Yet, respected economic research has found that many, perhaps most, mergers do not lead to significant reductions in cost or to increased innovation. Many, perhaps most, of the predicted efficiencies from mergers have failed to materialize. The Statement urges that in specific investigations, claims of efficiency benefits arising from a merger should be viewed more skeptically, and should be accompanied by empirical evidence demonstrating how these benefits will be achieved and how they will directly benefit consumers.

Potential Competition. Potential entrants can reduce the likelihood of anticompetitive effects from a merger, particularly where efficient small-scale entry by multiple firms is possible. On the other hand, mergers between an incumbent and a potential entrant can cause anticompetitive harm. Accordingly, competitive concerns may arise from mergers that remove significant potential entry, both perceived and likely actual potential entrants. This is a particular concern in high technology markets, where significant competition may occur well before products are sold to consumers. Potential entry should be a more important element in the analysis of the competitive effects of a merger than it has been in recent years.

Mr. Foer stated, “All four of these propositions differ in kind or in important degree from the assumptions, analyses, and enforcement decisions typically made by the current federal antitrust officials. We hope that the joint workshop, at which AAI was not invited to speak, will be an occasion for the serious reconsideration of current practices.”

Click here for the full statement.