There have been several eras of antitrust enforcement, corresponding with changes in interpretation and/or amendments to antitrust laws. Most eras have built upon previous work, refined it, and provided new evaluation methods. These advancements have led to what the former Department of Justice (DOJ) Assistant Attorney General Charles James called “the right stuff.” However, recent efforts seek to move antitrust into a new error that would shift priorities away from the consumer.
Courts and agencies have struggled to define an illegal merger beginning with the 1890 Sherman Antitrust Act. The text of the act was broad, making it difficult to establish clear definitions. The Clayton Act of 1914 enabled agencies to review merger proposals, while the Federal Trade Commission (FTC) Act of 1914 established an agency for enforcement (along with the DOJ’s Antitrust Division in 1919). While the Clayton Act applied to horizontal mergers, it was silent on vertical mergers. It wasn’t until the 1950 Cellar-Kefauver Amendment to the Clayton Act that there was an attempt to prevent vertical mergers from consummating if they would substantially reduce competition.
1962 Brown Shoe helped usher in a more structuralist approach to enforcement with a decision that permitted agencies to block mergers under a purely structural approach without regard to market domination or a merger’s positive effects on consumers. Because it was the first major case to interpret Cellar-Kefauver, it had a lot of power to set the precedent. Many mergers were blocked despite their potential to lower consumer prices and increase competition.
In regulatory agencies’ structural approach to antitrust enforcement, mergers were viewed almost exclusively by considering their impact on market structure. This began to change in 1974 with General Dynamics, which allowed for economic analysis as an argument against structural presumption. The shift towards a more economically rigorous and consumer-focused doctrine culminated in Robert Bork’s famous work, The Antitrust Paradox, which outlined the errors of previous structural and overly analytical approaches to antitrust.
The transition away from the structuralist era of the 1960s ended in 1982 when the DOJ released its Merger Guidelines, which officially allowed pro-consumer efficiencies to be used as a factor when evaluating mergers. Subsequent merger guidelines have largely built upon this framework.
In 2002, the DOJ released a document outlining its analysis of this transition and the subsequent modern antitrust era. According to the document, the DOJ outlines four major factors that contributed to the modern era possessing “the right stuff” to conduct effective antitrust enforcement.
The first factor was the judicial system’s more active participation in working as an independent fact-checker. Antitrust agencies have the bad habit of falling into unchecked groupthink and run the risk of losing focus and consistency. The courts can operate like a check on runaway agencies, as stated in the document,
“Independent judicial review by courts of general jurisdiction provides an important check on the sometimes insularity of the antitrust community and the possibility that agency officials may become intoxicated with their thinking, a phenomenon I refer to as “drinking one’s wine.” Courts, with their focus on evidence and their grounding in the technical requirements of the law, subject our antitrust theories to a true test of merit.”
The second factor was an increased focus on efficiency when evaluating mergers. No longer did merging firms have to argue against the efficiency gains from their acquisition. These efficiencies were correctly shown to have many pro-consumer and pro-competition benefits, as efficiency corresponds with lower prices on goods and services.
The third factor was economics’ increasing role in investigations and decision-making. The effects of a merger were no longer simply structural but economic. The economic lens allowed for a fuller understanding of mergers and their effects on consumer prices. The DOJ’s establishment of the Economic Policy Organization in 1973 marked the beginning of this transition, as previous agency administrations were almost entirely made up of lawyers.
The final factor was the release of the 1982 Merger Guidelines, which organized these changes into a single document that future administrations could build on and businesses could follow.
Today, we are arguably at the beginning of an attempt to create a new antitrust era. This era would be defined by the theories in the FTC’s 2023 Merger Guidelines, which diverge sharply from the spirit of the 1982 guidelines. Furthermore, cases pursued by both the FTC and DOJ have diverged in radical ways from the consumer welfare standard and efficiency-focused antitrust cases that have marked the “modern era.”
Though the new guidelines and antitrust enforcers have moved away from the 1982 framework, it is not clear the courts have done the same. The result has been a misalignment between how antitrust agencies and courts define legal mergers. Only time will tell whether the courts adopt the new framework or the agencies return to the “right stuff” that marked the prior consensus.
Isaac Schick is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.