Business mergers are largely seen to be the concern of private companies and their lawyers. However, another stakeholder that is frequently overlooked is the consumer. Whether the deal affects prices or innovations, consumers can be positively or negatively impacted. As antitrust enforcers are increasingly hostile to large companies, it is more important than ever for consumers to realize that they have the most to lose from an overly zealous approach that punishes good and bad mergers alike.
Lina Kahn, Chair of the Federal Trade Commission, made a name for herself due to her approach to antitrust—namely a structural focus on a firm’s size rather than consumer impact—which is a marked shift from the preceding administrations. While this approach has garnered no shortage of academic and political debate, these conversations largely neglect the group that will be most impacted, the consumer.
A prime manifestation of this approach is the updated merger guidelines that were finalized in 2023. Previous guidelines used market concentration thresholds—which measure the number of firms in a market to determine how competitive the market is—to help identify likely problematic mergers. The new guidelines significantly lowered this threshold. As a consequence, more mergers will now be treated as presumptively anticompetitive. Combined with increased litigation rates, the result is antitrust that is increasingly hostile to mergers and acquisitions.
Merger enforcement is a key and difficult component of antitrust law as impacts from mergers are case-specific and vary depending on the competitive environment. While it is important to recognize the potential for harm, it is equally important to recognize the potential for consumer benefits.
For consumers, this balance is crucial, because while they benefit from legal actions to stop harmful activities, they stand to lose from overzealous enforcement that halts beneficial mergers.
The traditional concern regarding mergers is that they eliminate competitors, in horizontal mergers, this is inevitable. However, mergers can also spur new competitors. A 2022 study of the MillerCoors joint venture found that a reduction in competition between the two beer giants contributed to an almost 12 percent increase in craft brewers. The authors speculated that a price increase, which a separate study found to be offset through efficiencies, could have served as the motivation for new entrants.
While Kahn diminished the idea that increased prices can sometimes be beneficial to competition by incentivizing new competitors, the MillerCoors example shows that this result can be borne out.
A paper from Harvard Business School found that when competitors merge, their products converge, and prices fall. The potential for lower prices or increased options are clear consumer benefits that can be derived from the economies of scale that mergers often create or expand.
However, not all benefits are as obvious. In his essay “What Is Seen and What Is Not Seen,” Frederic Bastiat described costs that are often hidden because they take the form of something that never happened versus something that was taken away. In the case of mergers, this concept applies to innovation that increased size and new capabilities bring.
According to a National Economic Research Associates study, there was a positive and significant relationship between merger activity and spending on research and development—which is often used as a proxy for innovation.
In a literature overview of over 120 articles, the authors found that on average mergers and acquisitions create wealth through positive returns for the company. While the impact on innovation can vary, the potential for increased profits can spur research and development which yields consumer benefits through new products and services.
While many may continue to argue about legal intent and philosophical approaches to antitrust, policymakers need to recognize that consumers bear the consequences of the outcomes. Consumers should be the focus of antitrust enforcement since they are the ones who will pay the price if things go wrong.
Tirzah Duren is the Vice President of Policy and Researchat the American Consumer Institute, a nonprofit educational and research organization. You can follow her on X @ConsumerPal