New antitrust guidelines introduced by U.S. regulators fail to go far enough in reining in potential anti-competitive problems posed by mergers and acquisitions, critics say.
The Justice Department and Federal Trade Commission outlined in new draft guidelines, released Jan. 10, the parameters for how vertical mergers, which combine companies in different parts of a supply chain, will be reviewed by the government for possible anti-competitive harms.
The first revamp of the rules in over 35 years generally reinforce the notion that vertical deals are by default pro-competitive and rarely need federal intervention, said Marshall Steinbaum, an economics professor at the University of Utah, who has advocated for tougher antitrust scrutiny.
Among the rewrite’s flaws, according to critics, are specifying price benefits gained by vertical mergers and setting certain minimum market share thresholds for challenging a deal.
Advocates for stronger antitrust enforcement, including Lina Khan, who serves as House antitrust subcommittee chairman Rep. David Cicilline’s (D-R.I.) counsel, want the DOJ and FTC to be more aggressive in their antitrust approach, especially in their review of vertical deals.
Enforcers must not only consider how a deal will raise prices, but also consider labor, wage, concentration of power, and other non-price implications, such critics say.
The tweaks primarily focus on price effects and don’t give much attention to other forms of anticompetitive conduct, Steinbaum said.
They “cement an antitrust status quo that doesn’t create the economic or political outcomes that people want,” Steinbaum said.
Points of Contention
Vertical deals are rarely challenged by the government.
In the past 43 years, the DOJ has only challenged two, AT&T Inc.'s merger with Time Warner and Hammermill Paper Co.'s acquisition of several paper distributors. The government lost both suits.
The general DOJ and FTC consensus is that vertical deals are often pro-competitive since they’re expected to lead to lower costs for companies, which in turn translates to lower prices for consumers.
Unlike the previous guidelines, the government’s latest rules specifically spell out the price benefits gained from vertical deals.
Firms that vertically merge eliminate the need to markup prices at different parts of the supply chain., e.g. at the distribution level and the production level, which leads to possible price reductions, the new guidelines lay out.
Vertical mergers lead to greater efficiency in corporate supply chains since merged firms are operating as one profit maximizing entity, instead of two separate companies, the rules say.
Such a vertical merger benefit is called the elimination of double marginalization (EDM).
While a vertical deal has the potential to create real efficiency, that doesn’t mean it will happen in every instance, Steinbaum said.
“I think enshrining that viewpoint in a policy document like this is not warranted,” he said.
Such price affects haven’t always played out in real life.
AT&T Inc. for example argued during the DOJ’s failed court challenge that its merger with Time Warner would lead to lower consumer prices. However, since the merger closed in 2018, subscribers have paid as much as 30% morefor AT&T’s TV NOW services.
Recognizing the possibility of price efficiency “is starkly the opposite of what antitrust reformers want,” said John Newman, an antitrust professor at the University of Miami School of Law.
The revisions “don’t seem to be any kind of break from the status quo or any kind of bombshell in favor of enforcement,” Newman, a former DOJ antitrust attorney, added.
The DOJ and FTC also outline in the new guidelines that a vertical deal will “unlikely” be challenged by federal agencies if it creates a new company with less than a 20 percent market share.
The guidelines do indicate there could be instances where a deal with a lower market share threshold could give rise to anti-competitive concerns.
The new 20 percent rule garnered pushback from the FTC’s Democratic Commissioner Rebecca Kelly Slaughter, who abstained from voting on the guidelines. In a Jan. 10 letter, Slaughter said such a provision creates an “imperfect proxy” for reviewing vertical deals.
Democratic Commissioner Rohit Chopra, who also abstained, issued a letter opposing the guidelines, saying the new rules fail to reflect “modern economic realities.”
“The revised draft guidelines are based on new economic understandings and the agencies’ experience over the past several decades and better reflect the agencies’ actual practice in evaluating proposed vertical mergers,” Makan Delrahim, the DOJ’s antitrust chief, said in a Jan. 10 press release.
Based on the guidelines, there’s no empirical basis for the 20 percent rule, said Maurice Stucke, a law professor at the University of Tennessee and former DOJ lawyer.
Guidelines “shouldn’t rely on presumptions unless there’s an empirical basis for it,” Stucke added.
While critics say the guidelines don’t go far enough, the new rules don’t serve as a specific “formula” for vertical deal challenges, Andrea Murino, a former DOJ antitrust attorney and partner at Goodwin Procter LLP, said.
In footnotes, the DOJ and FTC say that while the guidelines are an indication of the government’s overall thinking, the rules “neither dictate or exhaust” the range of evidence and strategies both agencies may bring in potential merger litigation.
“I think these guidelines are more pointed than they were in the past but I still think this gives the DOJ and FTC enormous leeway to explore new ways” to analyze vertical deals, Murino said.
The draft rules are subject to a 30 day comment period, which closes Feb 11.