Ever since the appointments of Lina Kahn and Jonathan Kanter to the Federal Trade Commission (FTC) and the Department of Justice (DOJ), antitrust enforcers have moved away from the traditional approach that focuses on consumer harm in favor of a generalized big is bad approach. That is a mistake. Merger activity is often pro-competitive, pro-efficiency, and pro-investment, which all combine to increase innovation and save consumers money.
Before the current administration, potential antitrust violations were determined by the consumer welfare standard (CWS), which used economic factors like prices, innovation, and output to determine if merger activity harmed consumer welfare and warranted government action. The standard was objective and consistent. It rightly replaced the archaic tendency to rely on arbitrary rulings.
But recent changes at the FTC would send us back to a bygone era of antitrust enforcement. Replacing the objective consumer welfare standard with an approach that relies on poorly defined market definitions, Uncle Sam’s antitrust enforcers have increased market uncertainty, decreased objectivity, and have otherwise created an environment hostile to pro-competitive merger activity that benefits consumers and innovators alike.
Businesses merge for all sorts of reasons, and each case should be reviewed on the merits. Companies operating at different levels of a supply chain, for example, often “vertically” merge their operations pro-competitively. That process frees up margin to cut costs. With more savings, businesses can lower prices or direct those resources into research and development investments that create new and better products that can be commercialized at scale.
Mergers also make it easier for businesses to acquire knowledge and talent to expand or compete in global markets. As the United States races to lead the world in artificial intelligence, the AI industry risks getting swept up in a big is bad antitrust techno-panic that thwarts innovation. Since AI startups rely on ample talent pools and consistent investment to fuel business innovation and product commercialization, tectonic shifts in competition enforcement threaten to derail those advances.
Rather than stifling innovation, mergers are often a bridge that connects innovators with the people and resources needed to bring their ideas to market, especially in the AI industry. In 2017, Meta acquired the AI startup, Ozlo, so its team could improve the Facebook messenger app. OpenAI has famously partnered with Microsoft to leverage the tech giant’s computing power to develop better performing versions of ChatGPT—a mutually beneficial arrangement also aimed at improving the Bing search engine. Antitrust enforcers may not like it, but mergers and partnerships are critical to technological improvements.
Despite increasing government skepticism, mergers can drive innovation and lower prices by increasing efficiencies and freeing up resources to invest and compete. Competition enforcers should re-prioritize consumer harms in antitrust decisions—both to help consumers and to promote vibrant industry.
Trey Price 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.