The concept of an ivory tower is a longstanding critique of those who discuss ideas while being disconnected from their real-world impacts. While potentially a platitude, it is a rather accurate description of recent efforts by the Federal Trade Commission (FTC) and the Department of Justice (DoJ) to rewrite merger guidelines to address corporate consolidation. These efforts ignore economic theory and the legal principle of certainty, creating a complex and difficult environment for all businesses to navigate while potentially diminishing the potential consumer benefits of such moves.
The state of merger guidelines has been unpredictable for the past few years. The latest change came in January of 2022 when the FTC and DoJ announced their intent to update not just the vertical merger guidelines but the horizontal ones as well. These updates could create lower thresholds under which the agencies would question potential mergers and acquisitions.
This round of revisions is likely to be approved with support from the White House, a Democratic majority on the FTC, and a known skeptic of mergers, Jonathan Kanter, leading the DoJ’s antitrust division.
One of the primary criticisms of the 2020 guidelines, which were ultimately rejected, was that vertical mergers—the consolidation of the supply chain and the elimination of double marginalization—were assumed to create efficiencies. The FTC Chair Lina Khan argued that “reliance on [elimination of double marginalization] is theoretically and factually misplaced.”
However, the 2020 guidelines did not presume that vertical mergers are procompetitive. The guidelines delineated multiple hypothetical scenarios in which vertical mergers could be anticompetitive without assuming this would always be the case.
Additionally, market efficiencies via mergers and acquisitions and the elimination of double marginalization can increase consumer welfare.
Various factors determine a merger’s effect on consumers making it impossible to prescribe a regulatory approach based on a universal presumption of the impacts of mergers and acquisitions. The original guidelines recognized this variance while not dismissing the potential for increased efficiencies and consumer benefits.
While possibly not identifying the mechanism through which these benefits occur, consumers have reaped the benefits of mergers and acquisitions. When Amazon purchased Whole Foods, it enabled the struggling grocery store to expand into delivery and lower prices. When Disney bought National Geographic and ESPN, the acquisition allowed consumers to stream a greater variety of TV Shows on Disney’s streaming service. Google’s addition of Android resulted in an alternative to Apple’s smartphones. These are just a few examples of how mergers and acquisitions can improve consumer welfare.
While not having law-making authority, agencies matter because their complaints can be costly and time-consuming for businesses. One example is the DoJ’s current complaint against Google, which was filed in 2020, but isn’t scheduled to go to court until 2023 and will likely not conclude until much later. The time-consuming process means less time companies can spend innovating and developing new goods and services.
In addition to revising the vertical merger guidelines, the FTC is also changing the time firms must wait before knowing if their mergers will be subject to additional oversight. Traditionally, the filing of an intended merger would trigger the 30-day Hart-Scott waiting period, after which both parties could finalize the merger with confidence that they wouldn’t face challenges from antitrust regulators.
However, in 2021, the FTC sent letters warning that mergers could still be subject to additional oversight even after the 30-day deadline, undermining the principle of legal certainty. The principle of legal certainty states that the “law must be sufficiently clear to provide those subject to legal norms with the means to regulate their own conduct and to protect against the arbitrary exercise of public power.”
For firms, this uncertainty is in direct opposition to this best practice and creates an increased risk as mergers and acquisitions could potentially be the subject of an FTC complaint even after being finalized. Actions by the FTC and DOJ have created an uncertain regulatory environment in which it is difficult for businesses to ensure they are following the changing and cryptic rules. This is a burden on businesses, but it also puts potential consumer benefits from mergers and acquisitions at risk.