This week, the Antitrust Division of the U.S. Department of Justice (DOJ) forced global insurance behemoths Aon and Willis Towers Watson to abandon their proposed mega-merger. The deal would have reduced competition in insurance brokerage markets from three to only two players, harming American businesses and consumers through higher prices and lower quality for health and retirement benefits products and services. This bold and needed move is a credit to the experienced, acting leadership at the Antitrust Division. It clearly recognizes the trend 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 nominee for Assistant Attorney General, Jonathan Kanter, to adopt a policy of moving to block more mergers, rather than settling them with remedies such as divestitures and conduct requirements and prohibitions.
The DOJ’s successful move to block the Aon-Willis Towers Watson merger is reminiscent of the Obama antitrust agencies’ efforts to block mega-mergers of a comparable scale. These merger challenges forced the merging parties to abandon or restructure their deals, or led to a government win in federal court by successfully obtaining an injunction to prevent their consummation. 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 workers. They were stopped largely because Obama enforcers, especially during the second term, were willing to take needed action to aggressively enforce Section 7 of the Clayton Act.
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. 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 commodities.
Stronger and bolder merger enforcement by the new 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 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 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: flagging 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 are challenged has averaged about 15% from 1993-2019. 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 relatively 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 enforcement agencies. While 2020 data are not yet available to complete the Trump administration statistics, challenge rates fell 14% from 2017-2019. However, in the transition from the Bush II to Obama antitrust agencies, challenge rates increased by 35%. Figure 1 shows that in the transition from the Bush II to Obama administration, the rate of forced abandonments and restructurings increased 31%, while it fell in the transition from the Clinton to Bush II and the Obama to Trump administrations. The large deals referenced earlier that were blocked by the later-era Obama enforcers are at center stage in this higher enforcement statistic. The new Biden enforcers might study those deals as they craft a policy for blocking more deals moving forward.
While the rate at which the Obama enforcers blocked harmful mergers ticked up, the rate at which they settled challenged mergers also increased. This is part of a longer-term trend toward settling more and more challenged mergers—across administrations. As shown in Figure 2, the rate of merger challenges (as a percentage of total clearances) that were settled subject to remedies from 1993-2019 was almost 20% higher than deals that were abandoned or restructured, or litigated in response to government opposition. Moreover, as shown by the trend lines for both categories of challenged mergers, it is clear that the settlement rate increased somewhat faster than that for deals that the FTC and DOJ moved to block. The Biden enforcers should work to reverse this longer-term trend in crafting a policy of blocking more harmful mergers.
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 anticompetitive agreements is also part of needed, broader invigoration of antitrust enforcement. Shaping the contours of a policy to restore the intended power of Section 7 of the Clayton Act will require changes in the antitrust agencies’ approach to risk. And in looking to examples of how to shift merger policy toward blocking more harmful deals, the Biden enforcers will find valuable lessons from the Obama era. This evidence suggests that—contrary to arguments made by some commentators—those agencies and the enforcers who led them made an outsized contribution to merger enforcement.