Consumer Impact Must Remain the Focus for Mergers and Acquisitions

It seems that each week, self-proclaimed trustbusters on Capitol Hill line up to attack big tech for alleged antitrust violations. Back in the firing line this week is Amazon after the company announced it was purchasing Metro-Goldwyn-Mayer (MGM) Studios for $8.45 billion. If the deal goes ahead, it would be the “second-largest acquisition in Amazon’s history, behind its $13.7 billion purchase of Whole Foods in 2017.” In a statement announcing the proposed acquisition, Amazon stated “through this acquisition, Amazon would empower MGM to continue to do what they do best: great storytelling.”

Despite Amazon’s claims, Senator Amy Klobuchar (D-MN) called on the Justice Department to probe the deal. Klobuchar stated, “this is a major acquisition that has the potential to impact millions of consumers. The Department of Justice must conduct a thorough investigation to ensure that this deal won’t risk harming competition.” Senator Josh Hawley (R-MO) took a more hostile stance, tweeting, “this sale should not go through.”

Klobuchar and Hawley’s opposition to the acquisition is rooted in a “big is bad” mentality that automatically presumes large companies are harmful to consumers and competition. Under this belief, the federal government has a duty to intervene and prevent big companies from getting larger. What this belief ignores, however, is the profound and significant benefits mergers and acquisitions can provide.

Rather than condemning the deal out of hand, lawmakers should consider the potential consumer benefits these mergers provide. Much of this could be obtained by employing the consumer welfare standard that evaluates whether a merger or acquisition harms or benefits consumers. This is not to say antitrust enforcers and legislators should not put mergers under scrutiny; instead, they should only work to avoid actual and irreparable consumer harm.

Recent history has shown why allowing large mergers and acquisitions to proceed can provide substantial benefits for consumers. Between 2000 and 2010, several large airlines merged to save the industry following the terrorist attacks of September 11, 2001, and the 2008 great recession. Trans World Airlines was acquired by American Airlines for $1.5 bn in 2001, America West was bought by U.S. Airways in 2005 for $1.5 billion, and Delta acquired Northwest Airlines in 2008 for $2.6 billion.

Despite the mergers reducing the number of airlines, they were allowed to proceed because the mergers “will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers. Consumers are also likely to benefit from improved service made possible by combining under single ownership the complementary aspects of the airlines’ networks.”

When defending the mergers, airline executives pointed out they could not maintain services to rural communities unless they merged and returned to profitability. In a testimony to the U.S. Senate in 2007, Gerald Grinstein, former Chief Executive Officer at Delta, warned unless mergers were authorized, there would be “a loss of service to small communities” and higher airfares for consumers.

As a result of these mergers, consumer welfare was enhanced. Not only were carriers able to continue service to small communities that would otherwise be unprofitable, but prices fell significantly. The result of this was more Americans flying between 2010 and 2019.

Facebook’s acquisition of WhatsApp in 2014 for $19 billion highlights the benefits consumers can derive from large mergers and acquisitions. As a result of this merger, WhatsApp shifted away from a subscription-based business model to allow users to use the service for free. Facebook also made considerable capital investments in data privacy and protection totaling $3.7 billion in 2019. The no cost of service and advanced protections have created a consumer base of over 68 million Americans.

Had Facebook not acquired WhatsApp, its probable consumers would still be paying for a service they presently enjoy for free, and the significant investments in data protection would not have been made. The net result of Facebook’s acquisition of WhatsApp was a substantial enhancement to consumer welfare.

While Amazon’s proposed acquisition of MGM studios is undoubtedly an eye-watering sum and would see two of the country’s most recognizable brands merge, this alone should not be the determining factor as to whether antitrust enforcers or lawmakers should act. Instead, they should recognize the benefits large mergers and acquisitions have brought to consumers in the past and continue to employ the consumer welfare standard rather than an impulsive hostility to these proposals due to company size.

Failing to do so will only deny consumers potential benefits and show they are not the pre-eminent concern in antitrust enforcement.

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