Can the Biden Enforcers Flip Merger Policy? Why Federal Enforcers Should Move to Block More Mergers Rather Than Settling for Remedies
The new Biden antitrust chiefs face a grim competition landscape in the U.S. economy. Legislative proposals to strengthen, clarify, and modernize the antitrust laws will provide needed help from Congress, should bipartisan support for constructive reform emerge. But while political and media attention remains focused on the digital technology markets, serious competitive problems in other sectors go under-recognized. This is true in consumer-facing markets such as in food and agriculture, healthcare, telecommunications, pharmaceuticals, and airlines. In these markets, consumers grapple with rising prices and less choice for essential products and services. And workers and smaller players are at the mercy of powerful buyers who bargain down wages and the prices of their commodities.
These problems are the result of declining competition, rising concentration, and growing evidence of harm from decades of weak enforcement. AAI encourages Federal Trade Commission (FTC) Chair, Lina Khan, and Assistant Attorney General for the U.S.Department of Justice (DOJ) Antitrust Division, Jonathan Kanter, to adopt more aggressive enforcement policies. This includes agency moves to block more mergers, rather than settling them with remedies such as divestitures and conduct requirements and prohibitions. Such an approach is reminiscent of the Obama antitrust agencies’ efforts to block mega-mergers by forcing the merging parties to abandon or restructure their deals, or going to federal court to successfully enjoin them. The AT&T-T-Mobile (2011), Baker Hughes-Halliburton (2016), Aetna-Humana (2017), Anthem-Cigna (2017), and Sysco-US Foods (2015) mergers fall into this category. Each would have resulted in highly concentrated markets from the loss of critical competition, leading to higher prices, lower quality, and reduced innovation—to the detriment of consumers and/or workers.
Stronger and bolder merger enforcement by the Biden antitrust leadership will be necessary to make even a dent in the concentrated market power and high barriers to entry that now exist in many critical sectors. That means a commitment from agency leadership to move to block—not settle—more harmful mergers by forcing the parties to abandon or restructure them, or going to court to litigate them. The Biden antitrust agencies can do this through enforcement action, agency advocacy and soft policy tools, and clear messaging to the business community. Leadership must be willing to use resources creatively to accomplish this, at the same time they work to overcome the antitrust culture of “risk aversion” that has hamstrung enforcement for decades.
A shift in antitrust culture, away from risk aversion and toward one that supports decisions to move to block more harmful mergers, must acknowledge several underlying problems. One is a reluctance to challenge potentially harmful mergers because too much weight is given to the risk of chilling pro-competitive deals. Enforcers should recognize that this “error cost” analysis is not grounded in fact and has led to increases in concentration that promote the exercise of market power.
The government should also reassess its aversion to litigation risk, or the possibility of losing in court if an agency moves to block a merger. This queasiness is not surprising given the almost insurmountable standard of proof to show harmful effects from a merger that has not yet occurred. But settling with defendants is often not a substitute for moving to block a harmful merger. Highly concentrative horizontal mergers, vertical mergers in concentrated markets with dominant players, and ecosystem mergers that facilitate the leveraging of market power increase the burden on remedies to fully restore competition. The growing list of failed remedies in previous mergers—for which consumers have largely borne the risk—supports the notion that the most effective remedy for restoring competition may often to be to block a merger.
Finally, enforcers should recognize that increasing concentration and the fear of retaliation that accompanies it will discourage third parties—customers, suppliers, and smaller rivals—from complaining to antitrust enforcers or providing information in merger investigations. This fear grows daily as domestic cartels and monopolies come to dominate critical sectors. But third parties are a critical source of information for challenging mergers. And a failure to obtain such information will only perpetuate weak enforcement.
In working toward a policy of blocking more harmful mergers, the Biden antitrust enforcers might also look to history for useful lessons. Merger enforcement statistics from the annual Hart Scott Rodino Act (HSR) reports to Congress provide information on the number of “second requests,” or early-stage probes into potentially harmful mergers, and the number of challenged transactions. HSR data has served as the basis for AAI’s seminal work in several areas, including: weak merger enforcement in the digital technology sector and identifying the declining rate of second requests for mergers in food processing, manufacturing, and distribution over the last 20 years.
Not all mergers are reportable under HSR, and of those that are cleared to the DOJ or FTC for a closer look, the majority receive early termination because they raise no competitive concerns. Of the transactions that are cleared to the agencies, the rate at which deals have been challenged averaged about 15% from 1993 to 2020. Those challenges fall into two major categories. One includes deals settled by consent decrees containing remedies. Another includes transactions that are abandoned or restructured in response to an agency move to block them. This group also includes the few mergers that the government ultimately does litigate.
The HSR data reveal that the rate of all merger challenges fell 10% in the transition from the Clinton to Bush II administration, increased 35% in the transition from the Bush II to Obama administration, and fell 3% from the Obama to Trump administration. Further unpacking the total number of challenges shows that in the transition from the Clinton to Bush II administration, the rate of abandoned, restructured, and litigated deals fell 17%. However, from the Bush II to Obama administration, this rate of moving to block harmful mergers increased by 31%. From the Obama to Trump administrations, it increased by 13%. At the same time, the rate at which the agencies settled illegal mergers with remedies fell about 3% from the Clinton to Bush II administration, increased 38% from the Bush II to Obama administration, and fell 15% from the Obama to Trump administration.
These statistics tell a troubling story of what current enforcers must overcome to restore the intended power of Section 7 of the Clayton Act. From 1993 to 2020, the average rate at which illegal mergers were settled with remedies in consent orders is about 15% higher than the rate at which the agencies moved to block harmful deals. The Biden enforcers are therefore faced with working to reverse an almost 30 year history of addressing harmful mergers through settlements, many of which have been ineffective in restoring competition lost by mergers and have resulted in “creeping” concentration in critical markets.
Public policy concerns over declining competition and rising concentration can be addressed, in part, through more aggressive merger enforcement. Stronger enforcement of anti-monopoly law and law prohibiting anti-competitive agreements is also part of needed, broader invigoration of antitrust enforcement. But shaping the contours of a fundamentally different approach to merger enforcement in the U.S. will require change — in the antitrust agencies’ approach to risk and in support from Congress to strengthen and clarify the laws.