Regulatory Leveraging: Problem or Solution?

“Nice merger you’ve got here. It would be a shame if anything was to happen to it.”[1]

In antitrust and related areas of economic regulation, private leveraging is risky business.  Large firms that use substantial market power in one product to distort competition for a second product are attractive targets for claims of illegal tying or monopolization.

What if the actor leveraging its power is not a private company, but a government agency?  Leveraging enables a regulator to use its gatekeeping authority to secure concessions that it might not have been able to achieve otherwise.  Should we applaud or condemn regulators for using a strategy that can result in prosecution when private parties do the same thing?

What kind of gatekeeping power makes regulatory leveraging possible? The most obvious example is the authority to grant or withhold approvals over something the regulated entity needs to function, including a license to operate in a given market (e.g., the right to operate a radio station) or the right to introduce a product (e.g., a particular pharmaceutical).  A less obvious example is the requirement to obtain regulatory approval before consummating a proposed merger.  A regulator that can attach conditions to its approval may use that power to engage in regulatory leveraging.

Four Easy Pieces

Is regulatory leveraging a normal, legitimate, and perhaps inevitable feature of agency design? Or is it hostage taking that forces regulated entities to pay an often sizeable ransom to be left in peace? We present four brief case studies that give a sense of the circumstances in which regulators can engage in leveraging.

Bosch-SPX: Leveraging Across Two Antitrust Domains

A regulator can leverage its power across distinct areas within a single policy domain.  In 2012, the FTC resolved two matters involving Robert Bosch Gmbh.[2] The first matter involved Bosch’s proposed acquisition of SPX Service Solutions U.S. LLC (“SPX”), which would have given Bosch a “virtual monopoly in the market for air-conditioning recycling, recovery, and recharge devices.”  That issue was resolved with Bosch’s agreement to divest its automotive air-conditioner repair equipment business, and make some licensing commitments.

The same FTC press release that announced the FTC’s approval of the Bosch-SPX merger also announced that the FTC and Bosch had resolved a separate dispute, over whether SPX had harmed competition by reneging “on a commitment to license key, standard-essential patents on fair, reasonable, and non-discriminatory (FRAND) terms.” Bosch agreed to abandon SPX’s claims for injunctive relief in those other cases, thereby resolving an ancillary matter that long preceded the proposed merger. It is not clear from the FTC’s press release how these two entirely distinct issues came to be settled simultaneously – but their appearance in the same press release certainly inclines us to believe that they were resolved as a package deal. Bosch had a huge incentive to give in on the SPX matter in order to obtain speedy approval of the proposed merger—and FTC personnel knew that.

Data Protection/Privacy and Merger Approval: Cross-Domain Leveraging by a Multipurpose Regulator

In the second scenario, a multipurpose agency leverages power across distinct policy domains within its portfolio of duties. In recent years, the use of data about consumer behavior has become a major policy concern.  Some commentators have suggested that merger approval is a useful mechanism to force firms to strengthen their privacy protections. The FTC confronted this issue in two merger reviews involving Google—in 2007, when Google sought regulatory approval for its acquisition of DoubleClick, and in 2010, when the FTC reviewed Google’s purchase of AdMob.

The FTC had legal authority to review Google’s proposed acquisitions of DoubleClick and AdMob. It also had authority to investigate Google’s data protection and privacy policies. Agency personnel disagreed on whether the merger review should be used as an excuse/pretext/justification to delve into Google’s data protection and privacy policies. Ultimately, the FTC did not use the merger review process to extract concessions from Google regarding its data protection and privacy policies. Indeed, the FTC’s closing statement in DoubleClick explicitly disavowed such strategies, noting that “the sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition.”[3]

Leveraging Across Policy Domains Occupied by Other Regulators

In the third scenario, an agency leverages power to affect a policy domain it does not “own.” In 2013, Ally Financial was seeking approval from the Federal Reserve and the Federal Deposit Insurance Corporation to convert from a bank holding company to a financial holding company. It was also being investigated by the Consumer Financial Protection Bureau (“CFPB”), an independent bureau located within the Federal Reserve. Although the CFPB has no regulatory authority over auto dealers, it decided to investigate whether the loan portfolios of indirect auto lenders, such as Ally, indicated that auto dealers were offering less favorable terms to minority borrowers.[4]

According to Ally’s former CEO, the CFPB “threatened to derail [Ally’s] efforts to obtain key regulatory approvals if it didn’t agree to settle,” by paying $100 million, and begin offering below-market rates to minorities.[5] He complained that the CFPB “absolutely knew they had tremendous leverage over us,” and was trying to change the policies of an industry it did not have the authority to regulate with a trumped-up case. Internal CFPB memos confirm that agency personnel knew that Ally needed regulatory approval, and the impending deadline to obtain that approval gave Ally a strong incentive to settle its dispute with the CFPB.[6]

Leveraging with a “Public Interest” Mandate

In a fourth scenario, an agency can use a public interest mandate to achieve commitments that are not authorized by more specific legal commands. Many statutes delegate expansive regulatory authority by requiring an agency to consider the “public interest” in making decisions. For example, in evaluating proposed mergers, the Federal Communications Commission (FCC) is required to evaluate whether the transaction will serve “the public interest, convenience, and necessity.”[7]

Public interest standards are an open-ended invitation to engage in regulatory leveraging. The FCC recently used the merger review process to strong-arm Charter Communications to “live up to stringent requirements that don’t apply to its bigger rivals,” including net neutrality standards that the FCC had been (to that date) unable to impose through direct regulation.[8] Over the past decade, the FCC has used this strategy to impose net neutrality constraints on AT&T, Verizon, BellSouth, Comcast, and NBC.[9] In the 1990s, the FCC used regulatory leverage to strong-arm Westinghouse into increasing the number of hours devoted to children’s educational programming on CBS.[10]  State and local regulators can play the same game. In 2016, the District of Columbia Public Service Commission conditioned its approval of the Exelon-Pepco merger on a host of ancillary provisions, including a commitment to relocate certain offices to D.C.; the hiring of unionized workers; and at least $1.9 million in annual average charitable contributions to organizations located in D.C. or benefiting D.C. residents.[11]

Benefits and Costs of Regulatory Leveraging

The most obvious benefit of regulatory leveraging is that it promotes more comprehensive settlements. In Bosch-SPX, the FTC already had an open file on SPX, and Bosch then came to the FTC with the proposed merger. Isn’t it more efficient to adopt one global settlement instead of maintaining two separate proceedings? If there are benefits in settlement (and there are), more comprehensive settlements must be better still.

Second, depending on the statutory language that is employed, leveraging may be an authorized delegation of legislative authority to regulate in a flexible way. Stated differently, Congress used “public interest” language to give the agency a hammer that could be deployed when a regulated entity comes to the agency for merger approval. But the agency can only use the hammer in carefully defined circumstances. This structure keeps the agency from expanding its regulatory leverage beyond any given transaction, while giving it the flexibility to solve problems without going through the drudgery of rulemaking or starting a separate case. And, if the agency goes too far, the courts and the legislature stand ready to protect the rule of law.

Regulatory leveraging also involves real risks and disadvantages. For starters, regulatory leveraging leads to less disciplined decision-making by governmental agencies. Agencies have an incentive to ignore or downgrade the controls imposed by the substantive regulatory regime and use leverage to circumvent those restrictions.

Second, regulatory leveraging leads to less transparent and less accountable decision-making. Merger review rarely ends up in court, so agency leadership need only persuade itself that its “wish list” is worth pursuing. Firms badly want to obtain immediate approval of their mergers, so agencies have them over a barrel.

Third, regulatory leveraging can be used for “good” or “evil.” If an agency was run by your worst enemy, what use would he put regulatory leveraging to? Sauce for the gander, anyone?

Finally, because regulatory leveraging is firm-specific, it can create significant discontinuities in the applicable law. Only firms that have had a merger reviewed by the agency will be subject to regulatory leverage—and the details of the resulting settlements may well vary, depending on the priorities of agency leadership at the time the merger was reviewed, and the extent to which firm management was willing to give away the store to get the merger approved.

Squaring the Regulatory Leveraging Circle

Some of the time, regulatory leveraging is a problem. And, some of the time, regulatory leveraging is the only available solution. This is not the kind of scenario that lends itself to a simple fix. But we propose “a few modest suggestions that may make a small difference.”[12]

Clear Grants of Authority. If Congress wants agencies to engage in regulatory leveraging, it should explicitly authorize the process, and identify some boundaries. Should agencies only engage in leveraging for substantive areas of law within their zone of regulatory authority, or should they be allowed to range more widely? What criteria should an agency employ in deciding whether to engage in regulatory leveraging?  An express congressional delegation of authority would go a long way to legitimate an agency’s use of regulatory leverage.

More Transparency. Agencies should be more explicit about what and how they leverage. This will simultaneously discipline their use of regulatory leveraging, and force them to articulate and justify their conduct. If an agency believes that regulatory leveraging is a sensible way of solving a problem, it should forthrightly explain and justify its actions. If an agency isn’t willing to brag about what it is doing, it probably shouldn’t be doing it.

Fewer Gates. More gates mean more gatekeepers—and more opportunities for regulatory leveraging. The obvious solution is to be careful about creating new gates, and revisit the necessity of existing gates. Before creating new gates, legislators should decide whether they are necessary—and if so, whether the responsible agency may engage in regulatory leveraging, and the circumstances under which leveraging can occur. Legislators should also “sunset” all gates to force routine reconsideration of the need for each gate.

Better Norms. Regulatory leveraging is, at best, a third-best solution for dealing with policy problems. In some instances, internal agency dynamics will discourage the use of regulatory leveraging. But, a robust government-wide norm against the use of regulatory leveraging could play a useful backup role.

Ex Post Review. We don’t know how often regulatory leveraging takes place, the circumstances under which it occurs, and how effective (or ineffective) it actually is. We don’t know nearly enough about the prevalence and results of regulatory leverage. Only a consistent practice of ex post review can cast light on these issues.

Regulators like leverage—and some of the time, it is the only available solution to a particular problem. But regulatory leverage raises very real risks and costs, which counsel for considerably greater caution than regulatory agencies have shown to date. Unless properly disciplined, regulatory leveraging becomes lawlessness.


[1] See Barry Popik, “Nice Place You Got Here. Be a Shame if Anything Happened to It.” (July 15, 2009), (tracing historical usage of the phrase). See also Monty Python’s Flying Circus: Army Protection Racket, YouTube, 1:41–1:49 (Nov. 13, 2015) [hereinafter Monty Python].

“Dino: You’ve . . . you’ve got a nice army base here, Colonel.

Colonel: Yes.

Dino: We wouldn’t want anything to happen to it.”

[2] Press Release, Federal Trade Commission, FTC Order Restores Competition in U.S. Market for Equipment Used to Recharge Vehicle Air Conditioning Systems (Nov. 26, 2012)

[3] Statement of Federal Trade Commission Concerning Google/DoubleClick, FTC File No. 071-0170, at

[4] Yuka Hayashi, Consumer Watchdog Pushed Discrimination Case on Vulnerable Firm: Report, Wall St. J. (Nov. 24, 2015, 7:09 PM),

[5] Paul Sperry, Bank CEO Reveals How Obama Administration Shook Him Down, N.Y. Post (Feb. 21, 2016, 6:00 AM),

[6] Hayashi, supra note 3.

[7] 47 U.S.C. §§ 214(e)(2) & 310(d).

[8] Shalini Ramachandran and John D. McKinnon, Regulators Recommend Approval of Charter-Time Warner Cable Deal, Wall St. J., (Apr. 25, 2016, 9:29 PM),

[9] Marvin Ammori, Here’s How Charter Will Commit to an Open Internet, Wired (June 25, 2015, 12:00 PM)

[10] Edmund L. Andrews, FCC Approval Seen Today For Westinghouse-CBS Deal, N.Y. Times, (Nov. 22, 1995), Interestingly, there was an internal dispute within the agency on this issue, with the chairman insisting on linking approval of the deal to the pledge to increase children’s programming, and three commissioners insisting that the FCC should make it clear that “it was in no way demanding that CBS or Westinghouse meet any quantitative requirements for children’s programming as a condition of approval.” Id.

[11] In re Joint Application of Exelon Corp. et al., Pub. Serv. Comm’n. of the Dist. of Columbia, Order No. 18148 ¶¶ CC, DD, HH (Mar. 23, 2016), available at

[12] James Q. Wilson, Bureaucracy: What Government Agencies Do and Why They Do It 369 (1989).

This post comes to us from William E. Kovacic, Visiting Professor, King’s College London, Global Competition Professor of Law and Policy, George Washington University Law School and Non-Executive Director, United Kingdom Competition and Markets Authority; and from David A. Hyman, H. Ross and Helen Workman Chair in Law, University of Illinois Colleges of Law and Medicine. It is based on their recent article, “Regulatory Leveraging: Problem or Solution?” available here.