Whether philosophers pursuing knowledge or statesmen seeking counsel for their troubles, many in ancient times traveled to the Oracle at Delphi, who besides her famous maxim “know thyself” also proclaimed “know what you have learned.” With U.S. antitrust law now in turmoil and searching for new wisdom, its own savants will soon issue their own Delphic edict: new merger guidelines.
As Bruce Kobayashi and I show in a new study for the Competitive Enterprise Institute, far from following the advice of the ancient Oracle, the new guidelines risk ignoring lessons about sound antitrust policy that led to a bipartisan consensus for enforcing the antitrust laws.
President Biden recently decried modern antitrust law and policy as a 40-year “experiment failed.” To correct these “mistakes,” the antitrust agencies plan to replace the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines (already withdrawn by the FTC) with a new enforcement approach. Although the precise nature–including the operational details–of the new guidelines remains unknown at the time of writing, the agencies have not only made their disdain for the last four decades known but also expressed their affinity for the pre-1980 merger law that modern guidelines long ago repudiated.
This pre-1980s paradigm was characterized by both a desire to protect competitors and a myopic focus on market concentration as measured by market share. Multiple court decisions before the last 40 years implied that a merger lowering costs and prices would nevertheless be condemned if it offended the stated goal of decentralization. This populism supposedly drove the simple concentration doctrine that condemned mergers between competitors with combined market shares as low as 5%.
In 1968, merger guidelines followed this faulty thinking. With a nod to the then-popular structuralist economics, in “highly concentrated” markets (defined as markets where the four largest firms had a combined share of at least 75%), mergers between firms each with at least a 4% market share would ordinarily be challenged. With a nod to the populists, the 1968 guidelines held that even in markets that were not “highly concentrated,” mergers between firms each with a 5% market share would ordinarily be challenged.
It was not long before the structuralist economics and populism underlying the 1968 guidelines were exposed as baseless. Critics of structuralism demonstrated that this approach did not discern between competitive and anticompetitive outcomes. Put simply, firms with successful products, not just anti-competitive monopolists, often have high market shares! Indeed, economists also demonstrated empirically that smaller competitors in concentrated markets had no higher profits than smaller firms in unconcentrated industries, providing strong evidence that the large firms in concentrated industries were more profitable because they were more efficient–not because they were acting anticompetitively.
Populism too was rejected–and by no less authorities than the Supreme Court and other of the nation’s leading jurists. Doubling down on its earlier wisdom that the antitrust laws are designed “to protect competition, not competitors,” the courts made clear that antitrust law prohibits business practices only when they harm consumers.
As Judge Richard Posner, himself a leading antitrust expert, explained, “it was prudent for the [FTC], rather than resting on the very strict merger decisions of the 1960s, to inquire into the probability of harm to consumers.” Four years later, then-Judge Clarence Thomas, in an opinion joined by then-judge Ruth Bader Ginsburg before both judges joined the Supreme Court, quoted Judge Posner approvingly in rejecting a merger challenge by the Department of Justice.
Consumer-focused antitrust thus became bipartisan. In the 1980s, guidelines from the Reagan administration repudiated populism by clarifying that only mergers resulting in harm to consumers were unlawful. Revised guidelines issued by the Bush and Clinton administrations heralded the end of structuralist economics by not only adopting the consumer welfare standard of the Reagan Guidelines but also formalizing the framework for evaluating the likely effects of a merger, including allowing merging parties to offer various defenses.
Moreover, the Obama administration’s 2010 guidelines further deemphasized the use of structural screens and raised the market share thresholds for mergers to be found presumptively anticompetitive far above those of the Reagan guidelines. And, just as the critics of yesteryear failed to account for size driven by efficiency, so do critics of today’s bipartisan consensus when they fail to account for the many procompetitive deals that might have been rejected under the old approach.
Beyond mergers, the FTC’s leaders find “monopoly” rife in the economy. To quote Larry Summers, Secretary of Treasury under President Clinton, whose warnings of impending inflation the Biden Administration ignored, this big is bad attitude is “presumptively problematic.” He fears a new era of “populist antitrust policy that will make the US economy, more inflationary, and less resilient.” Leading companies, including in the technology industries, have been built from the ground up in the United States rather than Europe or China largely because the American legal environment is stable, predictable, and uniquely hospitable to vigorous, paradigm-shattering competition by businesses, large and small.
Even successful companies can violate the antitrust law, of course. The rules of the last 40 years lead to the breakup of AT&T and the prosecution of Microsoft. Those same rules are now being adjudicated involving Facebook and Google in cases filed at the end of the 40 years the Biden administration condemned.
In another maxim featured at the entrance of the Temple of Apollo, the Delphic Oracle cautioned, “give a pledge and trouble is at hand.” Indeed, trouble is exactly what will result if the antitrust revolutionaries double down and reinstate the old failed merger policies. Those policies were rejected for sound reasons, often based on hard-won experience, as the case law they produced was incoherent, illogical, and most importantly, anti-consumer. Unfortunately, the current antitrust leadership seems intent on forcing the antitrust world and consumers to relearn those painful lessons.
Timothy J. Muris is a George Mason University Foundation Professor of Law and a former chairman of the Federal Trade Commission. He is co-author of the study “Turning Back the Clock: Structural Presumptions in Merger Analyses and Revised Merger Guidelines,” published by the Competitive Enterprise Institute.
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