FTC and DOJ Stress Need for Merger Guidelines to Reflect Realities of the Modern Economy
In her opening statement, FTC Chair Lina Khan noted that a review of the federal merger guidelines is especially timely given the “major technological and economic changes [that] have led to shifts in how businesses compete and grow . . ."2 Echoing these sentiments, Assistant Attorney General Jonathan Kanter noted that the “digital revolution” has transformed the economy “on a level that rivals the industrial revolution,” affecting not only the technology markets but markets across the economy, “many of which have been rebuilt from the inside out.”3 Kanter explained that supply chains in the modern economy are interconnected and evolving, and “no longer follow a simple upstream and downstream path.” Accordingly, he stressed the need for the agencies to tailor their merger review process to account for this complexity.
Kanter and Khan both emphasized that increased consolidation across industries necessitates a prompt review of the merger guidelines. Khan noted that global deal-making in 2021 reached the highest level ever recorded, and that the number of merger filings received by the agencies in 2021 was more than double the number received on average in each of the past five years. Khan expressed concern that the current merger boom has led to diminished opportunity for many Americans, leading to higher prices, lower wages, and lagging innovation.
FTC and DOJ Issue Request for Information to Inform Agencies’ Redrafting of the Merger Guidelines
The FTC and DOJ are requesting comments from the public, including “market participants, government entities, economists, attorneys, academics, unions, employees, farmers, workers, businesses, franchisees, and consumers” to assist the agencies as they work to revise the merger guidelines. The specific areas of inquiry for which input is requested include:
What harms are contemplated by the statutory standard banning transactions that “may” substantially lessen competition or tend to create a monopoly?
Should the distinctions between horizontal and vertical transactions reflected in the guidelines be revisited in light of trends in the modern economy?
Should the guidelines’ market concentration thresholds for a presumption of competitive harm be adjusted, and should alternative metrics or qualitative factors also trigger presumptions of competitive harm?
Should the guidelines’ market definition analysis be updated to better account for non-price competition?
If and when should direct evidence of a transaction’s likely competitive effects—such as evidence of head-to-head competition—eliminate the need for a separate market definition exercise?
How should the guidelines address potential and nascent competitors, which may be key sources of innovation and competition?
What is the impact of monopsony power, including in labor markets?
How should the guidelines account for key areas of the modern economy like digital markets, which often have characteristics like zero-price products, multi-sided markets and data aggregation?
During their remarks, Kanter and Khan each identified particular areas of interest within this broader set of topics. Kanter noted that DOJ is particularly “enthusiastic about learning more” about: (1) how the guidelines should account for market realities where transactions do not fit neatly into categorizations of “horizontal” and “vertical” mergers; (2) whether the revised guidelines should include updates with respect to how transactions by already-dominant firms are assessed; and (3) what additional tools the agencies can use—such as other indicia of market power or head-to-head-competition between merging parties—that may be more reliable for assessing the potential harms of mergers than market definition alone.
Khan said that she is particularly interested in: (1) whether the guidelines adequately address incentives driving acquisitions, such as moat-building or data-aggregation strategies by digital platforms, or “roll-up plays by private equity firms”; (2) how the guidelines should analyze whether a merger may “tend to create a monopoly” or whether there is a “trend toward concentration” in the industry; (3) what factors beyond wages, salaries, and financial compensation should the guidelines use to determine whether mergers may lessen competition in the labor markets? And should cost savings through layoffs or reduction of capacity be treated as efficiencies; and (4) what types of evidence should the guidelines consider in evaluating nonprice effects.
In a question and answer session with the press following Chair Khan and AAG Kanter’s remarks, David Lawrence, Chief of Competition Policy and Advocacy at the DOJ Antitrust Division stressed that the agencies are seeking a broad set of comments in response to their request for information, and intend to be as thoughtful as possible in considering these comments in order to put together a joint document that will “stand the test of time.” The Request for Information issued by the agencies is available here. The comment period is open for 60 days, and comments must be received no later than Monday, March 21, 2022. Following the initial comment period, the agencies will release a draft of the updated guidelines and seek further comment before publishing their final guidelines.
Authored by Logan Breed, Chuck Loughlin, and Lauren Battaglia.